SINGAPORE, Feb. 10 (UPI) — Although East Asian growth exceeded expectations last year, recent worsening of international economic conditions will likely cause the region’s prospects for this year to moderate, the Asian Development Bank said Monday.
The bank said East Asia posted economic growth of 6.1 percent in 2002, but should expect that to slip to 5.6 percent in 2003.
According to the quarterly Asia Economic Monitor report, there was a slowing in the export growth in the second half of last year, largely reflecting a souring global economic environment. Moderation of exports were reported in the second half of the year in Indonesia, Philippines, Singapore and Thailand. In China, South Korea and Malaysia exports moderated in the fourth quarter of the year.
Tensions over Iraq have led to a decline in business and consumer confidence and increases in oil prices — up 30 percent since June — and the projected turnaround in the global economy has been postponed by one or two quarters.
“Recent trends in leading indicators for U.S., Germany, and France suggest that global economic growth could pick up in the latter part of this year,” the report noted.
According to figures from the London-based Consensus Economics, the most drastic downward revisions of growth for 2003 compared to forecasts issued in the previous report are for Singapore (from 4.7 percent to 3.8 percent), South Korea (from 5.6 percent to 5 percent), Malaysia (from 5.2 percent to 4.7 percent), and Indonesia (from 4 percent to 3.6 percent). Growth forecasts for China, Thailand, and Philippines are largely unchanged at 7.5 percent, 4.1 percent and 3.9 percent, respectively.
The deteriorating external environment, weakening growth prospects and excess capacities across sectors pose major challenges for policymakers in East Asia.
“Countries need to respond by closely monitoring the changing economic situation so that they are ready to initiate appropriate policy responses, including cutting interest rates and easing their fiscal stance, to the extent that there is room for maneuver,” said Yoshihiro Iwasaki, the head of the ADB’s Regional Economic Monitoring Unit
The case for interest-rate reductions is especially strong, as the spread between short-term interest rates in most East Asian countries and U.S. rates has widened because most central banks in the region have not fully followed the latest rate cuts by the U.S. Federal Reserve.