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EIU says regional outlook bright if Iraq war cancelled

Asia-Pacific economies are set to grow faster than the rest of the world over the next few years, but worries over a US-led attack on Iraq and a patchy recovery in industrial nations may hold the region back, according to a study.

The Economist Intelligence Unit (EIU) report, prepared before the deadly Bali bomb blast a week ago, said Asian economies outside of Japan would enjoy the world's fastest average gross domestic product regional growth rate of 5.6 percent annually from this year to 2006.

In contrast, the world economy is projected to grow at an average of 2.7 percent this year from 2 percent last year. For next year, growth is seen at 3.6 percent and during 2004-2006, the pace of expansion will average 4 percent.

For the US economy, the EIU has trimmed its 2003 growth projections to 2.6 percent from 2.8 percent previously to reflect "both an expected weakening of activity in the closing months of this year and a gloomier view of the prospects for consumption, investment and exports."

Given that most of the regional econonies are heavily trade-oriented, the grim projections for the US economy and member countries of the OECD will undoubtedly impact Asia.

"The region is likely to attract foreign investment at a time of poor returns in the OECD, which will help boost domestic demand, but this will by no means provide a full offset to weaker exports," the EIU said.

"There are signs that some countries in the region have recently started contracting again as their exports slow," it said.

China, whose economy has put in a dazzling performance since its doors opened more than a decade ago, will lead the region's growth along with India, EIU said.

A number of countries in Asia are still somewhat pinned down by the reforms they had to undertake due to the 1997-1998 financial crisis but growth in the region is still expected to be higher than in other emerging economies, it said.

"The financial and corporate sector restructuring that began after the crisis is still affecting economic performance in many countries," EIU said. "Although such reforms are necessary to underpin medium-term prospects, they are having a detrimental impact on growth in the short-term, as unprofitable operations are closed and bad debts are dealt with," it said.

But fallout from a possible US-Iraq conflict and long-standing imbalances in the US economy -- still the world's growth locomotive -- pose the two biggest risks to these forecasts, EIU said.
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