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p. 2 of 68 BACK | NEXT I. Developing Asia and the World Overview of Economic Trends and Prospects Overview of Economic Trends in Developing Asia in 2002 Macroeconomic Conditions in 2002 Outlook for Industrial Countries Developing Asia: Subregional Trends and Prospects Developing Asia: Risks and Uncertainties Overview of Fiscal Policy in Developing Asia II. Economic Trends and Prospects in Developing Asia III. Competitiveness in Developing Asia Statistical Appendix

Asian Development Outlook 2003 : I. Developing Asia and the World

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Overview of Economic Trends and Prospects

The world economy and developing Asia began 2002 quite strongly as the recovery from the slowdown of 2001 continued, though as the year advanced the pace of growth in industrial countries slowed and became more uneven. The United States (US) economy showed strong growth in the first and third quarters of 2002, but weaker performance toward the end of the year kept overall recovery below expectations. Economies in the euro area performed poorly in comparison with estimates made at the beginning of the year. In Japan, despite stronger than expected gross domestic product (GDP) growth in the second half, the economy expanded only slightly over the course of the year.

In contrast, in developing Asia (the developing member countries DMCs of the Asian Development Bank), growth in most countries strengthened; it accelerated further in the second half of the year as export demand began to pick up. Expansionary fiscal and accommodative monetary policy, mainly in East and Southeast Asia, contributed to strengthening aggregate demand particularly consumption while somewhat firmer external markets provided a boost to industrial production (Figure 1.1).

Prospects for 2003 are clouded by economic weaknesses in the industrial countries and uncertainties relating to the conflict in Iraq and the recent outbreak of severe acute respiratory syndrome (SARS) in Asia. As a result, forecasts have all been adjusted downward in early 2003. In industrial countries, growth divergences between the US, euro area, and Japan will remain significant, with growth in the US at around the 2002 outcome, and weak GDP growth in the euro area and Japan.

In developing Asia, aggregate growth projections have been reduced from those at the end of 2002. In most DMCs, domestic demand will remain robust and exports will continue to expand. Macroeconomic policies will generally remain supportive, although both fiscal and monetary policy will need to tighten somewhat in many countries.

At the start of the second quarter of 2003, the economic outlook for Asia is highly vulnerable to the risks of a further weakening in the outlook for industrial countries, volatility in oil prices, disruptions in tourism, the negative impacts on regional and international markets due to the conflict in Iraq, and the as yet uncertain consequences of SARS.

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