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ADB Raises Developing Asia 2006 Growth Forecast to 7.7%

News Release | 6 September 2006

MANILA, PHILIPPINES - Developing Asia's strong economic expansion is expected to continue, with growth projected at 7.7% in 2006 before easing to 7.1% in 2007, according to a major ADB report released today.

"Developing Asia's rapid growth is underpinned by strong performances by the People's Republic of China (PRC) and India, which together account for more than 50% of regional GDP," said Mr. Ifzal Ali, ADB Chief Economist, in launching Asian Development Outlook 2006 Update.

"The region should take advantage of this strength to act in three areas that could undermine growth if not addressed - the need to complete the adjustment to high oil prices, the need to pick up the pace of fiscal consolidation, and the need to stimulate investment," he said.

If PRC and India are removed from the calculation, the remaining countries of developing Asia are expected to grow by more modest averages: 5.5% in 2006 and 5.1% in 2007.

ADO Update is a supplement to ADB's annual flagship publication, Asian Development Outlook 2006, which was published in April and forecasts economic trends in the region.

The 7.7% growth forecast for 2006 represents a 0.5 percentage point increase from the April forecast. The upward revision significantly reflects accelerated growth in the PRC due to booming investments and exports. ADO Update forecasts 10.4% growth for PRC in 2006. Upward revision to growth forecasts of the three larger South Asian economies - Bangladesh, India, and Pakistan - on the back of strong export growth also fed the upward adjustment.

For 2007, ADO Update forecasts growth of 7.1% for developing Asia, up marginally from the 7.0% forecast in April. The easing from 2006 growth is anticipated based on expected slower demand from industrial countries and continuing high oil prices. ADO Update's forecast for 2007 rests heavily on the assumptions that policy adjustments in PRC will slow the economy to a more moderate 9.5% expansion and that India continues to grow at 7.8%.

The projection for East Asia for 2006 has been revised upward to 8.2% from 7.7% in April, driven mainly by the faster expansion estimated for PRC that in part influenced upgrades for Hong Kong, China and Mongolia. The April growth estimates for South Korea and Taipei,China were essentially maintained as these countries continue to encounter weak domestic demand conditions, partly due to adjustment to excessive credit card debt.

Growth in South Asia in 2006 is projected at 7.5%, up from 7.3% forecast in April. Since 2002 South Asian growth has averaged 7.7%, almost matching that of East Asia and two percentage points above growth in Southeast Asia.

Increasingly vibrant manufacturing activities in Bangladesh, India, and Pakistan are lifting exports, which contributed to some upgrading of growth estimates in 2006. In Nepal, the restoration of Parliament and a broadened political process have improved the economic situation and prospects. ADO Update also raised growth estimates for Afghanistan and Sri Lanka despite continuing security issues.

In Southeast Asia, the forecast has been downgraded marginally to 5.4% from 5.5% in April. Political uncertainty and a postponement of large infrastructure projects in Thailand, and slowing consumer spending in Malaysia have crimped growth from the April estimates for the two countries. But favorable weather conditions and fiscal improvements in the Philippines, and strength in electronics and pharmaceutical manufacturing in Singapore have boosted their outlooks. In Indonesia, efforts to fight inflation curbed growth in the first half of the year but a rebound in the second half is expected to achieve the April growth estimate of 5.4%.

In Central Asia, ADO Update lifted projections for the major oil producing countries -Azerbaijan and Kazakhstan - while the outlook for Armenia was also upgraded. These revisions pushed Central Asia's aggregate forecast to 11.3%, one percentage point higher than the rapid average pace of the past five years.

Faster anticipated growth in the Pacific region, now put at 3.3% for 2006, reflected upward revisions for the two largest economies of Papua New Guinea, an oil exporter, and Fiji Islands.

ADO Update includes a section on trade issues that may have implications for the longer term, as well as a theme chapter on developing Asia's rising influence in world commodity markets.

"The outlook for Asian growth is quite positive as both domestic and external conditions remain favorable," Mr. Ali said. "The region should act now to lay defenses against potential risks and ensure the region's rapid growth is sustained."