The Asian Development Bank (ADB) downgraded its 2003 economic growth forecast for East Asia yesterday, citing an impending US invasion of Iraq and easing export momentum.
Average GDP growth in the region is expected to moderate to 5.6 percent this year from 6.1 percent in 2002, the Manila-based bank's Regional Economic Monitoring Unit (REMU) said.
The bank had earlier predicted that the economies of Brunei, Cambodia, China, Indonesia, South Korea, Laos, Myanmar, Malaysia, the Philippines, Singapore, Thailand and Vietnam would have an average growth of nearly six percent this year.
In a quarterly report card on the health of the 12 economies, the ADB said tensions over Iraq had led to rising uncertainty, dampened business as well as consumer confidence and pushed oil prices 30 percent higher since mid-June 2002.
"The recent worsening of the external environment will impinge on East Asia's economic prospects for 2003, causing forecasters to mark down their projections," cautioned REMU head Yoshihiro Iwasaki.
The US and its allies have warned they would go to war with Iraq if it does not comply and disarm according to UN demands.
Using figures from London-based private institution Consensus Economic Inc, the ADB revised downwards 2003 GDP growth forecast 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 were largely unchanged at 7.5 percent, 4.1 percent and 3.9 percent respectively.
The ADB also issued a warning on the region's moderating export growth momentum because of less imports from the US, Europe and Japan.
* Growth forecasts for China, Thailand and the Philippines were largely unchanged at 7.5 percent, 4.1 percent and 3.9 percent respectively.
* GDP growth forecast for Singapore fell 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.
* The report said tensions over Iraq had led to rising uncertainty, dampened business as well as consumer confidence.
* Oil prices have been 30 percent higher since June 2002.
Growth of East Asian exports, the region's top money spinner, eased in the second half of last year in Indonesia, the Philippines, Singapore and Thailand.
Exports also moderated in China, South Korea and Malaysia in the fourth quarter of 2002.
"This only goes to show that the region remains dependent on the G3 [US, Europe and Japan] for its exports and the hypothesis that the region has disconnected from those markets is exaggerated," REMU Director Pradumna Rana said.
"We say that East Asia has become resilient but the G3 markets are important and the disconnecting hypothesis will take a long time to happen," he said.
Rana said although intra-regional trade was increasing on the back of China's rapid growth, a "large chunk" of it was effectively imports of semi-processed goods for re-export to US, Europe and Japan.
"Ultimately, most of the exports head to the G3," he added.
The ADB also said that for the first time since the 1997-1998 Asian financial crisis, net lending by foreign commercial banks to five crisis-affected nations -- Indonesia, Malaysia, the Philippines, Thailand and South Korea -- had turned positive.
Many foreign banks had bailed out of the region during the crisis and the new development signified that capital withdrawal by foreign commercial banks might have ended, Rana said.
The ADB said that also for the first time since the crisis, 2002 saw real bank credit to the private sector increase in Indonesia and Thailand, suggesting that reforms are starting to bear fruit. Real bank credit is lending by domestic banks.
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