Emerging East Asia to Post Strong Growth in 2006, Says ADB
HONG KONG, CHINA - The economies of emerging East Asia will grow 7.5% as a group in 2006, drawing strength from a sustained, broad-based economic expansion in major industrial countries that are key export markets for the region, and a rebound in the global information technology industry, according to a new ADB report. “The region has adjusted well to a challenging first half characterized by high energy costs, persistent inflationary pressures, tighter monetary conditions, and financial volatility,” says Masahiro Kawai, head of ADB’s Office of Regional Economic Integration, which produces the Asia Economic Monitor (AEM), available at aric.adb.org “There was a revival of external demand in the first half of the year and domestic demand is also now strengthening in several economies. Together these factors will help drive growth in the second half.” 2006 will be the third consecutive year of average GDP growth above 7% for emerging East Asia, which comprises the 10 ASEAN countries; People’s Republic of China (PRC); Hong Kong, China; Republic of Korea (Korea); and Taipei,China. Together, these economies posted 7.2% growth in 2005, and 7.9% in 2004. The AEM forecasts 6.9% growth for emerging East Asia in 2007 on an anticipated easing of growth in the US, Japan, and PRC. The outlook for the PRC economy is a key element of the region’s prospects. AEM forecasts GDP in the PRC will grow a strong 10.1% this year and 9.0% in 2007. Importantly for the rest of emerging East Asia, PRC imports are expected to rebound from exceptionally low growth in 2005. PRC demand, with the global rebound in IT and improving domestic demand, is expected to propel growth in the three newly industrialized economies (NIEs) - Korea; Hong Kong, China; and Taipei,China. GDP growth in the NIEs is forecast at 5.1% in 2006, up from 4.5% in 2005. ASEAN economies can expect steady GDP growth of 5.5% in 2006, reflecting the stable external outlook, with slight variations up or down across economies, according to AEM. ASEAN growth is forecast to rise slightly to 5.7% in 2007 as Indonesia recovers from the effects of its August 2005 mini-financial crisis. (Country assessments start on page 38 of AEM.) The broadly favorable outlook for the region is subject to two types of risks. Near-term cyclical risks would include a sharp fall in external demand, faster-than-expected correction of an overheating PRC economy, higher-than-expected energy prices, and a significant deterioration in global financial conditions. Deeper structural, low probability but high impact risks would include a sudden and disruptive adjustment of the global payments imbalances and the outbreak of an avian flu pandemic. Against the backdrop of robust growth and higher inflation, emerging East Asia’s policy options for managing near-term risks comprise a combination of further monetary tightening - through interest rate hikes or currency appreciation, or both - and, in some cases, additional efforts to narrow fiscal deficits and reduce public debt. For example, in the PRC, both interest rate hikes to cool domestic demand and currency appreciation to address external imbalances are appropriate. At the same time, increasing exposure of banks to real estate in some economies needs close monitoring and appropriate measures to reduce risks, AEM says. To address deeper vulnerabilities, the region’s policy priorities should be to boost domestic demand - consumption in the PRC and investment in most other economies, increase exchange rate flexibility, improve the region’s energy efficiency, and prepare for the possibility of an avian flu pandemic. “The strengths of emerging East Asia’s economies and the risks they face are relatively clear,” says Mr. Kawai. “With sound policy decisions the region should be able to maintain its strong growth and continue setting the trend for rapid development and poverty reduction.” Read the full report. About ADB | 
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