ADB forecasts Asia to post robust growth in 2007-2008

Developing Asian economies will post robust growth in 2007, underpinned by strengthening domestic demand and a broadly favorable outlook for the international economy, ADB says in its Asian Development Outlook (ADO) report. It forecast developing Asian economies to expand at 7.6% in 2007 and 7.7% in 2008. The region achieved an economic expansion of 8.3% in 2006, its fastest rate in more than a decade.

Rapid growth in the People’s Republic of China (PRC) and India accounted for about 70% of the region’s economic expansion in 2006.

In India, vibrant industrial growth supported by buoyant services led to a 9.2% growth rate in 2006, the highest since 1988. But an uptick in inflation, an overheated property sector and rapid credit growth led the central bank to hike interest rates and restrain property sector lending.

The report forecasts India’s economic expansion will moderate to 8% in 2007 and domestic inflationary pressures will ebb. Growth will pick up to 8.3% in 2008. Affecting growth estimates is the slowing pace of economic reforms and sluggish agricultural productivity growth in an economy where most people still depend on agriculture for livelihood. A sharp rise in food prices underscores the need for structural transformation in India, the report notes.

In the PRC, rapidly growing exports and strong fixed asset investment helped deliver yet another year of double-digit growth of 10.7% in 2006.

The PRC government’s moves to restrain rapid fixed asset investment are expected to gain more traction in 2007, but it may struggle to rein in spending in the run-up to the Party Congress in 2007 and the Olympics in 2008. PRC growth is expected to marginally ease to 10 percent in 2007 and moderate to 9.8 percent in the following year.

Projected growth in Southeast Asia is 5.6% in 2007, edging up to 5.9% in 2008. In Indonesia, lower inflation and lower interest rates will give a boost to domestic spending thereby accelerating growth. Cambodia, Lao PDR, and Viet Nam will again grow briskly.

Economic prospects for some countries in the region remain uncertain as they grapple with downside political risks.

Business and consumer confidence in Thailand is slipping and growth is expected to slow down. The introduction of capital controls in December 2006 rattled the markets, and policies are still being changed. Clarity about the future direction of economic policies should strengthen the economic outlook.

Although it is still early to pass judgment on Bangladesh’s economic performance, conditions for doing business could improve if the anticorruption and reform initiatives taken by the caretaker government continue.

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