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p. 3 of 81 BACK | NEXT I. Developing Asia and the World Developing Asia and the World Overview of 2001 Developing Asian Economic Trends External Conditions in 2001 and 2002 Subregional Trends and Prospects Medium-Term Outlook and Risks for Developing Asia II. Economic Trends and Prospects in Developing Asia III. Preferential Trade Agreements in Asia and the Pacific

Asian Development Outlook 2002 : I. Developing Asia and the World

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Overview of 2001 Developing Asian Economic Trends

As external demand receded in 2001, economic growth of the developing member countries (DMCs or developing Asia) of the Asian Development Bank (ADB) slowed to half its 2000 pace (Table 1.1). East Asian economic growth, high in 2000, was much lower in 2001 because an erosion of external demand sharply affected Hong Kong, China; Republic of Korea (Korea); and Taipei,China; while growth eased somewhat in the People’s Republic of China (PRC). Southeast Asia was similarly affected by falling external demand, resulting in a pronounced drop in growth in 2001.

In contrast, South Asian growth accelerated as slowing export expansion was offset by improvement in agriculture. In Central Asia, growth was higher in 2001, in part because of heavy investment mainly in the energy sector. The recession in Papua New Guinea, political instability, and fiscal difficulties continued to affect overall 2001 performance in the Pacific DMCs.

The United States (US) dollar value of merchandise exports of developing Asia fell by 6.8% in 2001, a stark reversal from the 21.2% expansion in 2000 (Table 1.2). The loss of momentum in external demand was less severe in the South Asian subregion, for which information and communications technology (ICT) and nonagricultural commodity exports are less important and for which less volatile products such as textiles are more prominent exports. For East Asia and Southeast Asia, generally, the severexports of developing Asia fell by 6.8% in 2001, a stark reversal from the 21.2% expansion in 2000 (Table 1.2). The loss of momentum in external demand was less severe in the South Asian subregion, for which information and communications technology (ICT) and nonagricultural commodity exports are less important and for which less volatile products such as textiles are more prominent exports. For East Asia and Southeast Asia, generally, the severity of the turnaround in the momentum of external demand stemmed from the collapse in ICT trade. Central Asia was affected by the decline in commodity prices, which deepened after September 11th 2001. Because the export decline was somewhat larger than the decline in imports, the 2001 current account surplus for DMCs as a whole shrank slightly in 2001, as it has done every year since peaking at 5.4% of aggregate gross domestic product (GDP) in 1998.

On the domestic demand side, the relatively stronger growth rates in some DMCs generally originated in the contribution of sustained or accelerating consumption growth, while investment growth tended to be somewhat weaker. In some cases, such as the PRC, this was partly the result of sustained fiscal deficit spending. In others, such as India and the Philippines, strengthening consumption arose from rising agricultural output and incomes.

In those cases of weaker or negative growth, DMCs often saw both slowing consumption growth—despite fiscal stimulus—and contracting investment. This, for example, included Korea; Malaysia; Singapore; and Taipei,China, for all of which the sharp deterioration in ICT exports fed through into investment in the ICT sector as a result of the deterioration in the outlook for sales. Some Central Asian countries were exceptions to this trend of relatively weak contributions to growth from investment in comparison with consumption. Fueled by rapid expansion of the oil and gas sector, Azerbaijan, Kazakhstan, and Turkmenistan experienced rapid growth of investment.

Despite generally weaker growth, inflation edged up in DMCs from 2.3% in 2000 to 3% in 2001. However, this level of inflation is still low by historical standards. Inflation was low despite significant monetary loosening across the region, particularly in East Asia and Southeast Asia, but this had only a limited effect because of weak credit expansion. Moderate exchange rate depreciation against the US dollar in much of developing Asia also had a limited effect on inflation because import prices were generally falling. Indonesia’s inflation rate, however, accelerated from under 4% to over 11% partly because of increases in administered prices for fuel. Inflation continued its secular downward trend in Central Asia.

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