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East Asia emerging from crisis but
vulnerable
By Emad Mekay
WASHINGTON - Despite a stuttering world economy,
East Asia is on track for a moderate economic rebound
this year and in 2003, but faces risks from a slowdown
in industrialized nations and a possible US-Iraq war,
the Asian Development Bank (ADB) said in a recent
report.
Exports and domestic demand have driven
East Asia's economic recovery, which started in the
first quarter of this year and continued in the second
and third quarters, the bank said in its report, Growth
and Recovery in 2002, released on Thursday.
ADB
forecasts East Asia's gross domestic product (GDP)
growth to reach 6 percent in 2002 and 5.9 percent in
2003. China, Asia's second-largest economy, will
continue to be the fastest-growing country in the region
with expected growth of 7.7 percent this year and 7.5
percent next year.
The report projects growing
private capital flows to the region, especially next
year, despite earlier forecasts by the Institute of
International Finance that capital flows to emerging
markets are declining. Capital investment in emerging
markets in Asia and Pacific is projected to increase to
US$60.3 billion from $53.4 billion in 2001.
For
the countries covered in the report - China, South
Korea, Indonesia, Malaysia, the Philippines, Singapore,
and Thailand - GDP growth accelerated in the second
quarter to 6.2 percent. Growth in the first quarter was
5.3 percent, compared with 4.3 percent for the whole of
2001. Second-quarter growth ranged from 3.5 percent in
Indonesia (up from 2.2 percent in the first quarter) to
8 percent in China (up from 7.6 percent), with South
Korea managing an impressive 6.3 percent growth
(compared with 5.8 percent).
The second-quarter
acceleration was particularly marked for the more open
economies, such as Singapore (from 1.5 percent to 3.7
percent) and Malaysia (from 1.1 percent to 3.8 percent),
the report said.
The report, which was mostly
written before last Saturday's terrorist attack against
tourists on the Indonesian island of Bali, says that the
region's performance this year still compares favorably
with stock markets in industrial countries as well as
those in most other emerging markets around the world.
The car-bomb attack took the lives of more than 180
nightclubbers, prompting warnings that terrorism in the
area could drag down the region's economies.
Kenneth Rogoff, chief economist of the
International Monetary Fund (IMF), warned in Singapore
this week that substantial risks remained for the
region's economies, primarily because terrorism was
"slowing the gains from increased globalization". The
attack comes at a critical time - just as many Asian
countries are completing a long recovery from the severe
economic crisis of the late 1990s. Already, travel and
tourism companies are reeling from the Bali incident,
and Indonesia says the attack could tarnish the year's
healthy economic performance as tourists avoid the
country and investors postpone their plans.
The
report said that the projected 6 percent GDP growth
faces two main threats. The first comes from
lower-than-expected growth in industrial countries,
which are a major source of growth for East Asia. "Not
only will the region's export prospects be vastly
diminished, but the regional equity markets, which until
now have shown some resilience to the global stock
market slide, will come under heightened pressure. This,
in turn, will adversely affect domestic demand," the
report said.
Second, risk of US-led military
action against Iraq heightened uncertainty and could
spur oil prices upward. "Apart from the uncertainty
about the possible conflict and the damaging
consequences for investors across the globe, the first
reaction to such an event would be a sharp increase in
international oil prices, as happened in 1990 when the
Gulf War started," the report said.
ADB said
countries should closely monitor the emerging external
environment, and be ready with what it called
"appropriate fiscal and monetary responses" should
export prospects deteriorate sharply.
It also
recommended that countries push ahead with financial and
corporate restructuring and reform in order to improve
resilience to external shocks.
(Inter Press
Service)
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