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ADB sees Asia's economic growth slowing

"A combination of slower growth in China and an acceleration of growth in [South] Korea should just about cancel each other out, leaving the average for East Asia at about 7.7 percent, matching 2005's performance."

the Asian Development Bank's Asian Development Outlook

Asia's economic growth was expected to slow down in the next two years mainly due to the impact of continuing high oil prices and interest-rate hikes, the Asian Development Bank (ADB) said yesterday.

Despite the decline, the Manila-based bank noted in its annual Asian Development Outlook report that the region's projected GDP growth would remain robust "by historical standards" this year and next.

"Against a backdrop of favorable global conditions, of marginally less-accommodative macroeconomic policy settings and of continued adjustments to high oil prices, aggregate growth in 2006 is expected to soften a little to 7.2 percent, and by some more in 2007 to 7 percent," the bank report said.

The bank said Asia's overall growth projections were heavily influenced by the big economies of China, India and South Korea.

China's GDP growth was expected to ease to 9.5 percent this year and 8.8 percent next year, compared to 9.9 percent last year, after the government announced it was targeting slower growth to focus on social and environmental issues, the report said.

On the other hand, South Korea's GDP was expected to accelerate to 5.1 percent this year from 4 percent last year. Growth would ease to 4.9 percent next year.

"A combination of slower growth in China and an acceleration of growth in [South] Korea should just about cancel each other out, leaving the average for East Asia at about 7.7 percent, matching 2005's performance," the report said.

In South Asia, the bank said India's economic growth was expected to slow down to 7.6 percent this year and pick up by next year to 7.8 percent, compared to 8.1 percent last year, as interest rates rise and the government moves for fiscal consolidation.

But the report warned that the growth outlook could be muddled by such risks as the possible outbreak of an avian influenza pandemic and widening imbalances in global payments.

"The most troubling scenario would be one in which the US dollar showed an abrupt and sharp depreciation," the report said. "This would almost inevitably be accompanied by an increase in long-term US interest rates.

"Asia could then get caught in a double bind: not only would its experts to US markets become more expensive in US-dollar terms, but domestic demand in the US could sag under the weight of higher market interest rates," it added.

Looking further, the bank warned that the quality of Asia's growth poses risks to the environment "to the point where threats to water and other resources could increasingly constrain growth.

"The incident of environmental disasters appears to be increasing and this has now captured the attention of policymakers in China and other countries," the report noted. "As Asia continues to modernize and industrialize, it must find ways to promote cleaner production and technologies as well as greater energy efficiency."

The bank also cautioned Asian economies that prospects would be imperiled "if inequality continues to widen and growth does not provide jobs for its massive population."
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