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Growth forecast slashed but no recession: analysts

Asian economic growth forecasts have been slashed for this year and in 2006 as benchmark oil prices edge towards US$70 a barrel, but economists say a recession is unlikely.

Strong growth in key export markets the US and China should keep Asian economies running smoothly, albeit at a slower pace, they said.

New York light sweet crude briefly hit an all-time high of US$68 a barrel on Thursday before retreating to US$66.13 dollars the next day on the diminishing threat of Hurricane Katrina in the Gulf of Mexico.

But market observers believe the pullback is only temporary and that it is only a matter of time before prices gush past US$70 a barrel after more than doubling since the end of 2003 when prices hovered near US$33.

The surging oil prices have caused a number of multinational financial institutions to revise their growth forecasts for Asia, among them the Asian Development Bank, said ADB economist Cyn Young-Park, without disclosing the new figures.

The ADB in its April report forecast East Asian growth to average 6.7 to 7.2 percent in the next two years. Its updated outlook is due to be released on Sep. 8.

"Asian economies, in the face of rising oil prices, are likely to slow down. But we do not expect that this deterioration in growth will be something that will be full-blown and have a recessionary impact," Cyn told reporters by telephone.

"Generally, Asian economies are stronger [to withstand shocks] now, and we still have a very strong growth engine such as China."

Milan Brahmbhatt, the World Bank's lead economist for East Asia and the Pacific, said the bank is also likely to trim its growth forecast made in April, except for China whose growth is tipped to accelerate.

The downward revision is largely a result of higher oil prices and slower export expansion, he told reporters by e-mail.

Growth for Hong Kong, South Korea, Singapore and Taiwan is likely to be at 3.8 percent this year from the original 4.6 percent, he said, pointing to the Korean and Taiwanese economies as among the most exposed to costlier oil.

"The main Southeast Asian economies -- Indonesia, Malaysia, the Philippines and Thailand -- are also expected to experience slower growth next year than we had expected in April," he said.

The World Bank is now projecting the four countries to grow at an average 5.0 percent this year instead of 5.3 percent. For next year, these countries are likely to grow at 5.4 percent instead of 5.6 percent.

Thailand and the Philippines are expected to suffer more than Indonesia and Malaysia, which are both oil exporters.

But Brahmbhatt stressed the cuts are based on a "relatively benign" scenario of oil prices remaining at current levels this year and pulling back next year. This would mean oil prices averaging around US$55 a barrel this year and US$50 dollars next year.

He warned the impact would be more severe if prices vaulted beyond US$70 a barrel.

Andy Xie, chief Asian economist for US investment bank Morgan Stanley, said higher oil import bills have begun taking their toll on the region's economies.

"The strongest headwind for growth is oil so far," he said in a report.
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