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US financial woes bad news for Asia: regional think tank

The economic outlook for the Asia-Pacific region is the most uncertain it has been since the 1997 to 1998 financial crisis because of a possible spillover from the US subprime mortgage crisis, a regional think tank said yesterday.

But the Pacific Economic Cooperation Council (PECC) said it expected the US economy would not enter a recession and that the troubled US housing market would recover by the second-half of next year.

A report by the Singapore-based PECC, which groups more than 20 economies stretching across the Pacific from Australia and China to Chile and Canada, was "cautiously optimistic" about the region's outlook, projecting economic growth to remain at 4.9 percent next year, about the same as this year.

"The risks come principally from the United States," said Woo Yuen Pau, the report's coordinator, warning that problems in the US mortgage market could spill over into broader financial markets and into the real economy.

Over the last few months, global financial markets have been roiled by the crisis, triggered by a surge in defaults on mortgages in the US to borrowers with poor credit histories, which led to a credit crunch and losses at banks.

"At the start of 2008, the economic outlook the Asia-Pacific region is more uncertain than it has been since the 1997-98 Asian financial crisis," the report said.

While a possible slowdown in the US economy will hurt Asian exports, the effects will be offset to some extent by robust growth in imports into China, the report said.

"We think we will be able to dodge the bullet, and that is in part due to very robust domestic demand in Asia, principally from China where import growth is still very strong and domestic demand growth is also very robust," Woo said at a press conference.

Established in 1980, the PECC is a regional economic cooperation forum comprising officials from business, government and academic circles in countries or states across the Pacific Rim. Its report, published annually, also includes a survey of 380 international opinion leaders, including business leaders, academics, senior officials and others.

The respondents cited high energy prices, water pollution and global warming as the top three risks to economic growth in the region.

On climate change, the report said the 21-member APEC is well placed to contribute to efforts to address the problem because of its membership that includes developed and developing countries.

The report, however, said the "aspirational goals" set by APEC at its Sydney annual meeting in September on energy efficiency and increasing forest cover fail to address the Kyoto Protocol's core principle of reducing global carbon emissions rather than just the intensity of energy use.

"An aspirational goal ... doesn't really mean that much in the end. So I think it was not a particularly impressive beginning," PECC's international chair Charles Morrison said.

"But I think the sentiment within the region has become so strong," he said. "There will be a lot of pressure on governments."
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