Developing Asia's
healthy expansion is expected to continue, with
growth projected at 6.6% in both 2005 and 2006,
according to a report released by the Asian
Development Bank (ADB). But the impact of higher
oil prices constitutes a major source of
uncertainty.
Projections in ADB's Outlook
2005 Update have been revised up slightly to 6.9%
for East Asia for 2005, driven by the
higher-than-anticipated full-year growth of China
of 9.2%. For the rest of East Asia, though, growth
has been revised down to 3.8% from the earlier
projection of 4.4% due to slower export growth.
Next year's growth projection for East Asia has
been forecast at 6.9%, with a small upward
revision for China offset by downward revisions
for the Republic of Korea and Taiwan.
Surging net exports, strong investment,
and accelerating consumption are expected to
propel economic growth in the People's Republic of
China (PRC) to 9.2% this year, outpacing an
earlier forecast of 8.5%. According to the updated
outlook, the
PRC's economy showed little
sign of the anticipated growth slowdown in the
first half of 2005. ADB forecasts GDP growth of
just below 9% for 2006. "It is expected that high
economic growth will be supported by rising
incomes and consumption, though the deceleration
of investment and net exports expected from the
second half of 2005 is likely to bring GDP growth
down a little from the peak levels of recent
years."
Growth in South Asia is on track
for 2005, with India continuing to expand at a
brisk pace, Pakistan posting its fastest growth in
more than two decades, and Bangladesh growing
steadily. India's outlook continues to look
bullish in 2006, lifting the subregional average
for South Asia to 6.6%. Even if estimates show
that India's GDP growth could be clipped by up to
1.1 percentage points if oil prices remain around
$70 per barrel through end 2006, "this negative
impact is expected to be offset by other positive
effects, including the government's initiatives on
infrastructure investment", the update says. Other
underlying factors are: higher private investment
and the positive outlook of entrepreneurs; the
rise of consumerism among a rapidly growing middle
class; a more aggressive attitude by financial
institutions in consumer lending as well as
industrial and farm credit; the substantial
business opportunities in exports; and expansion
of market liberalization policies.
But a
variety of factors have dimmed the outlook this
year in Southeast Asia, including poor harvests
and high oil prices, particularly hitting
Philippines and Thailand, and a slowdown in the
global electronics sector affecting Malaysia and
the Philippines. These negative developments are
to some degree offset by continuing robust growth
in Vietnam and an improving investment climate in
Indonesia. But overall, 2005 growth in Southeast
Asia has been revised down to 5% from 5.4%.
High oil prices are taking their toll on
Thailand's economy and the full-year growth
forecast has been lowered to 4% from 5.6%
projected earlier this year. The ADB holds that
inflation has accelerated faster than expected in
the country, and trade and current account
balances are likely to record deficits this year.
Thailand's GDP growth is likely to pick up in 2006
partly due to public spending programs,
particularly on large infrastructure projects. The
economy is forecast to expand by 5% in 2006,
revised down from 5.8%. In addition to rising
global oil prices, Thailand was hit by drought in
the first half of the year, which reduced
agricultural output.
The projected 2005
growth for the Philippines has been revised down
to 4.7% from 5%. The growth forecast for 2006 has
been lowered slightly to 4.8%, also from 5%.
Drought early this year reduced agricultural
output. Electronic exports, which account for more
than half the country's merchandise exports, rose
by only 0.3% in the first six months. Moreover,
capital formation, or investment, contracted by
5.5% during the first half. "Investment is likely
to remain weak through 2006, and the constrained
budget position effectively rules out any major
fiscal stimulus," the update points out.
The ADB has raised Indonesia's full-year
growth outlook slightly to 5.7%, from an earlier
forecast of 5.5%. "The investment pickup, from a
low base, follows the relatively seamless
transition to a new government after elections in
2004, and expectations of greater regulatory
certainty and a recovery in infrastructure
spending," says the outlook update. But the report
also warns that a burgeoning oil subsidy bill
could yet jeopardize prospects.
For 2006,
Southeast Asia's economic growth should pick up,
but at 5.4% - a slightly slower rate than earlier
predicted. In Thailand, the factors that held
expansion in check (including the affects of the
tsunami) during 2005 should recede. The global
electronics sector should also bottom out and by
2006 begin a new expansionary phase, which would
help lift exports and growth in Malaysia and the
Philippines.
So far, Central Asia's net
oil exporters have benefited from the higher oil
prices and new production capacity, to the degree
that subregional growth in 2005 is expected to top
9%. With high oil prices expected to continue
through 2006, the ADB has revised up projected
growth for next year to 9.4% from 8.8%. "The
overall outlook for developing Asia is more
uncertain than earlier in the year, with some
risks now being more accentuated," the outlook
report says.
As a large net oil importer
and a comparatively energy-inefficient region,
Asia is particularly vulnerable to high oil
prices. Even net oil exporters such as Kazakhstan,
Papua New Guinea and Vietnam also face challenges
when oil prices soar. Across Asia, countries need
to adjust to the possibility that high oil prices
are here for some time. Oil prices have risen by
almost 75% since the beginning of 2005.
Across the region, signs of strain are
beginning to show. "Failure to adjust could put
prospects at risk," said Ifzal Ali, ADB's chief
economist. Other risks include the possibility
that growth might slow in the US. "Despite all
these, we continue to be cautiously optimistic on
developing Asia," Ali said. "The healthy expansion
is expected to continue drawing on strong internal
dynamics, particularly, growth in China and
structural improvements in
South Asia."
