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Region can weather US slowdown: UN

Economic growth in developing nations in the Asia-Pacific region will fall slightly this year to 7.7 percent, the UN said yesterday, but buoyed by booming India and China, it will likely weather a slowdown in the US.

The region is entering a phase of "heightened uncertainty," the UN report said, with export-led countries to be hardest hit by the ongoing financial turmoil in the US.

"In the worst case scenario of a recession in the US and a deeper depreciation of the dollar, the impact in much of the region would be harsh," the report said.

"Most vulnerable will be the exporters of high-technology products, such as electronics, to the US: Singapore, South Korea and Taiwan," said the report outlining the economic and social situation for the region for this year.

After a record GDP growth of 8.2 percent last year, global factors including high oil and food prices prices would take a toll in the region, the report by the UN Economic and Social Commission for Asia and the Pacific (ESCAP) said.

Rich countries in the region including Japan, Australia and New Zealand will see growth drop to 1.6 percent this year from 2 percent last year, it said.

But China and India's economies would continue chugging along, offering opportunities to other export-led economies.

India is expected to maintain growth at 9 percent this year while in China, government spending increases will spur domestic demand.

"China and India, the region's growth locomotives, are expected to grow at a robust pace, boosting growth in the region," ESCAP deputy executive secretary Shigeru Mochida said.

"So far the Asia Pacific region has been resilient -- it is mainly due to the good and strong economic fundamentals," he told reporters at the Bangkok launch of their report.

Maintaining these fundamentals by moderating inflation and keeping budget deficits and interest rates low was key to weathering turmoil in the world's largest economy, sparked by the housing crisis and credit crunch, he said.

Exporters would face a double whammy of a weakening dollar due to sharply lowered interest rates in the US, as well as slowing demand.

Inflation, meanwhile, is projected at 4.6 percent this year in developing nations, down from 5.1 percent the previous year.

Soaring food prices were a major concern, UN officials said, while agriculture was in need of drastic reform, with government neglect of the sector helping keep 641 million people in the region in poverty.

"Something must be very wrong in the current approach to development if it leaves millions of people in extreme poverty, when so much prosperity has been generated in such a short time," Mochida said.

But even with the credit crunch casting a pall over export-led economies, the financial turmoil is also throwing up opportunities.

"Interest in Asia-Pacific assets may increase because of the strong growth projections for the region," the ESCAP report said.

In addition, sovereign wealth funds in the region are increasingly being tapped to help bolster weakened banks in the US and Europe.

The report also said the region's corporations, being "cash rich and not highly leveraged" have been largely resilient to the US credit crunch.
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