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p. 7 of 77 BACK | NEXT Foreword, Acknowledgments, Contents, Acronyms and Abbreviations, Definitions I. Developing Asia and the World Developing Asia and the Pacific: Performance and Prospects Prospects for the World Economy in 2006-2007 Outlook for major economies World trade and commodity prices Capital flows and markets Subregional Summaries Textiles and Clothing in the Post-Quota Era: The Outlook for Asian Suppliers The Doha Development Agenda: Asian Challenges and Prospects after the Ministerial Meeting in Hong Kong, China II. Economic trends and prospects in developing Asia III. Routes for Asia's Trade Statistical appendix

Asian Development Outlook 2006 : I. Developing Asia and the World

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Prospects for the World Economy in 2006-2007

The world economy demonstrated great resilience in 2005, despite rising oil prices, multiple natural disasters, and tight commodity markets. Growth in the United States (US), Japan, and euro zone averaged 2.7%, slowing from 3.2% in 2004. These figures mask important divergences in growth performance—a rapid recovery in Japan, strong growth in the US, and a faltering recovery in the euro zone. This divergence in economic performance among industrial economies is likely to narrow somewhat in 2006 and 2007. Asia continued to grow rapidly.

Overall, the outlook for the world economy in 2006 and 2007 is positive, with annual growth in the US, euro zone, and Japan forecast to average 2.7%. Inflation in the Organisation for Economic Co-operation and Development (OECD) countries is projected to average approximately 2% over the same period, reflecting recent and ongoing monetary tightening in the largest industrial economies. The volume of trade is anticipated to grow by around 7% a year in 2006 and 2007. Demand for Asian output is therefore expected to remain healthy.

Despite the positive outlook, there are downside risks. These include higher energy prices, growing protectionist sentiment in the industrial world, avian flu crossing to humans, and the possibility of sharp adjustments in exchange and interest rates induced by widening international payments imbalances. The Asian Development Outlook 2006 baseline scenario outlined below assumes that these risks do not eventuate over the forecast period.

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