MANILA, PHILIPPINES (20 December 2004) - East Asia is likely
to register this year its best GDP growth since the 1997
financial crisis, reaching 7.6%, despite high oil prices and
some loss of growth momentum, according to a report released
today by ADB.
But with the external economic environment turning less
favorable, domestic demand set to soften and the People's
Republic of China's (PRC's) economic slowdown likely to
continue, lower but solid growth at 6.5% is forecast for next
year, says the December issue of Asia Economic Monitor (AEM),
using forecasts provided by Consensus Economics.
East Asia in the report, prepared by ADB's Regional Economic
Monitoring Unit (REMU), is defined as the 10 members of the
Association of Southeast Asian Nations, plus the PRC and
Republic of Korea.
Forecasts for next year are subject to three main risks:
continued high oil prices, a disorderly adjustment of the US
current account deficit, and a hard landing in the PRC, AEM
"East Asian economies and financial markets have performed
well despite high oil prices, as, among others, price peaks
have not approached the levels of previous oil shocks in real
terms and countries are now more energy-efficient and less
vulnerable," says Pradumna B. Rana, REMU Director.
"But if oil prices remain high, or worse, increase further,
they could push up inflation and adversely affect growth in
East Asia," he adds.
East Asia's growth this year has been driven by a
combination of a rapid increase in exports and the continued
strength in domestic demand. The strong growth, coupled with
high commodity prices, including oil prices, has led to a rise
in inflation across the region. However, this has moderated in
recent months, except in Malaysia and the Philippines.
The region's stock markets have generally rebounded strongly
in recent months following a weak performance around the middle
of the year.
Reflecting the broad weakness of the US dollar and robust
balance of payments, East Asian currencies have generally
appreciated against the dollar.
Current account surpluses and strong capital inflows have
led to a sizable increase in East Asia's foreign exchange
Continued progress in financial and corporate restructuring
and improved prudential indicators have reduced East Asia's
financial vulnerability. Nonperforming loan ratios continue to
trend down, and external debt to international reserve ratios
are falling in most countries.
"The key policy challenge facing East Asia over the next
year or two is to sustain the robust GDP growth at a time when
US interest rates and domestic inflation rates are on an upward
path," AEM says.
"Against the emerging global and regional economic backdrop,
an appropriate policy response should have three key
components: tighter fiscal and monetary policies, greater
exchange rate flexibility, and structural reforms to invigorate
The AEM is available at REMU's Asia Regional Information
Read the full report