East Asia economy slowing — ADB

Economic growth in East Asia will remain robust but will slow down to 6.8 percent in 2005 due to a less favorable external environment, the Asian Development Bank (ADB) forecast yesterday.

This reduction from the gross domestic product (GDP) growth of 7.6 percent in 2004 was also attributed partly to oil prices reaching record highs this year, the ADB said in its Asia Economic Monitor report.

However, the ADB warned that the growth forecast was "subject to risks from further increases in oil prices and a disorderly adjustment of the global payments imbalance."

The report, released at the ADB headquarters in the Philippine capital, said that a "loss of economic momentum in major industrial markets," and a drop in demand for new information technology products were the main reasons for the worsening external economic environment.

The ADB noted that exports grew at a slower rate in the first half of 2005, in all of East Asia’s larger economies except China. This development, coupled with higher oil prices and "a general bias toward tighter macroeconomic policies," resulted in the slower growth in most of the region.

Excluding China, East Asia is expected to post average growth of 4.4 percent this year, compared to 5.5 percent growth last year, the ADB added.

China, however, will also see its growth slow down to 8.9 percent this year from 9.5 percent last year due to "a gradual softening of fixed investment... and somewhat diminished export prospects," the ADB added.

"We now face a backdrop of moderately slowing growth, a gradual build-up of inflationary pressures, and a tightening of US monetary policy," Pradumna Rana, an ADB senior director said in the report.

"The key challenge for East Asia is to calibrate fiscal, monetary, and exchange rate policies while at the same time pursuing structural reforms to strengthen domestic demand," he added. — AFP