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ADB sees dip in growth for Asia

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Brief and shallow

Asian financial crunch

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MANILA, Philippines -- The Asian Development Bank (ADB) has issued a reduced 2001 economic growth forecast for Asia's developing countries amidst a global economic slowdown and a dwindling demand for exports.

According to the Asian Development outlook for 2001, average economic growth among Asia's developing countries is expected to slow to 5.3 percent this year, from 7.1 percent in 2000.

ADB said Asia's newly industrialized economies such as Hong Kong, China, South Korea, Singapore and Taiwan, as well as those throughout Southeast Asia, will bear the brunt of the drop in United States' investment where they depend heavily on technology exports.

In contrast, the Asian Development Bank (ADB) expects China and India, which together comprise half the total output of developing Asia, to continue to grow strongly on the back of robust domestic demand.

Growth in Cambodia, Laos and Vietnam and the Pacific nations will likely be sustained or even strengthened in 2001-2002, on the assumption that crucial domestic reforms will continue.

Growth in central Asian republics is likely to ease sharply, reflecting the pressures of a projected slowdown in Russia.

Still, the ADB expects a 6.1 percent rebound in the countries' gross domestic product in 2002, but only if the world economy experiences a minor "hiccup."

"By the year 2002, we should be getting closer to the trend growth rate that has been going on in the past several years," said ADB Chief Economist Arvind Panagariya.

Brief and shallow

ADB is cautiously optimistic that the slowdown in the global economy will be relatively brief and shallow.

It forecast growth slowing to 3.5 percent in 2001, from 4.8 percent last year, before returning to a clip of almost four percent in 2002.

The report said short-term risks for developing member country (DMC) economies were related to continued weakness in the U.S. economy in the first part of 2001, developments in the technology sector, and prospects for the Japanese economy.

"The risks are especially significant for those DMCs where recoveries depend heavily on exports, where financial and corporate restructuring is incomplete, and where political uncertainties remain," it added.

On the positive side, the ADB said intra-regional trade within Asia should help cushion the blow of weaker demand from the U.S.

"This has grown significantly over the last decade and can reduce the region's vulnerability to external factors," it said.

Asian financial crunch

Despite the slowdown, the ADB said a repeat of Asia's 1997-98 financial crunch was extremely unlikely.

East Asia's 'crisis' economies were running current account surpluses, meaning they relied much less on short-term foreign capital and had adopted flexible exchange rates. This, the ADB said, put them in a better position to head off any renewed loss of confidence.

But with the global economy slowing down, the ADB stressed that Asia could not afford to be complacent.

"Financial sector restructuring is far from complete, non-performing loan levels are high and corporate restructuring is inadequate, with poor profitability and high leverage ratios," Panagariya said.

U.S. GDP growth is expected to slow abruptly to less than two percent in 2001, from five percent last year, before picking up to about three percent in 2002.

Reuters contributed to this report.

ADB warns of higher external risks
March 19, 2001

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