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Developing Asia's economy has staged a moderate recovery in 2002 after the turbulence of 2001, but the rebound is facing increasing risks and heightened uncertainty.
The recovery has benefited from renewed exports growth and continued domestic demand expansion after the setback in 2001, when the region's average gross domestic product (GDP) growth fell to a meager 3.7 percent from the previous year's 7 percent due to the US-led slowdown in the global economy and the worldwide slump in electronics demand.
Taking advantage of an improvement in external demand early this year, the region's exports, its main growth engine, have gradually turned to recovery and, in some cases, renewed strength after contracting by 6.9 percent last year from a sizzling growth of 21 percent in 2000.
In the first 10 months of the year, the export growth rates in China's Hong Kong, Thailand, South Korea, Malaysia and the Philippines ranged from 3.2 percent to 8.1 percent, while exports of China's mainland grew by about 20 percent.
With exports still weak to the traditional markets of the United States, Japan and euro-zone economies, which usually absorb 50 percent of developing Asia's total exports, trade within the region has increased, especially exports to China's mainland from other regional economies. In the first three quarters of this year,imports by China's mainland from South Korea rose by 13.6 percent while those from Southeast Asian nations jumped by 27 percent on average.
Accompanying a turnaround in exports, continued domestic demand expansion in many major economies due to expansionary policies and restructuring has provided substantial support to economic recovery, most significantly in South Korea and Malaysia. In the first three quarters of the year, private consumption, public consumption and gross domestic investment in South Korea climbed by 7.4 percent, 4.3 percent and 5.5 percent, respectively, while those in Malaysia increased by 4.1 percent, 16.8 percent and 7.8 percent, respectively.
Across the region, private consumption has played a key role indriving domestic demand, although the other two components of domestic investment and public consumption have also been significant in several countries. In South Korea, private consumption has accounted for about three fourths of the growth indomestic demand since the third quarter of last year. However, overall domestic demand remains weak in some countries, such as Indonesia and Singapore.
Driven by both exports and domestic demand, the performance of many economies in the region has improved, though to varying degrees. In the first three quarters of the year, the annualized GDP growth rates in Singapore, Indonesia, Malaysia, the Philippines, Thailand and South Korea ranged from 2 percent to 6 percent. China's mainland topped the region with a growth rate of 7.9 percent.
The Manila-based Asian Development Bank (ADB) forecast in a recent report that developing Asia's average GDP would grow 5.6 percent this year and continue to pick up by 5.6 percent next year, still outperforming other regions of the world. China's mainland continues to enjoy rapid growth of above 7 percent and provides the anchor stabilizing the regional economy.
So far, prospects for the regional recovery look upbeat, but the outlook is clouded by mounting risks, especially an increasingly uncertain international environment, warned analysts and international financial institutions.
On the external front, the most significant short-term menace is the much slower-than-expected growth among industrial countries, which would hurt the recovery of the region that could still not wean itself from its dependence on exports for growth. Increased intra-regional trade is not sufficient to provide a significant buffer because part of it goes into supply chains that is ultimately feeding demand from America, Japan and Europe.
The second major risk is a possible US-led war against Iraq and the associated increase in uncertainty and oil price spikes. A sustained surge in oil prices, which have already risen considerably this year, would adversely affect the recovery of the region that now imports about 40 percent of its crude oil needs.
Another risk is the global deflationary trend. In the Asian region, some major economies are already experiencing very low inflation rates or deflation, which could inhibit economic growth by suppressing consumption and investment.
On the domestic front, a major risk is the weakness in investment, particularly private investment. In general, with certain exceptions such as China's mainland and oil exporting countries of Central Asia, where strong investment continues, there is scant evidence of a significant turnaround in investment.
Another risk is the high level of fiscal deficits and public sector debt in several countries which has increased their macroeconomic vulnerabilities. In Thailand, the Philippines and Indonesia, the present public debt to GDP ratio ranges from about 60 percent to 100 percent, leaving governments little room to easefiscal policies to support domestic demand in the immediate future.
Meanwhile, there exists the persistence of high levels of non-performing loans in many countries, despite the progress made across the region in addressing banking and corporate restructuring, most noticeable in South Korea and Malaysia. Bank lending continues to be sluggish in Indonesia, the Philippines and Thailand as banks are still cautious in lending.
Moreover, an emerging concern is the security situation in Southeast Asia, illustrated by the recent terrorist bomb attacks in Indonesia's Bali island and in the Philippines. If terrorist activities or the perception of these threats continue to prevail, it will dampen business and investment confidence as well as hurt the sub-region's tourism industry, which accounted for 10.8 percent of its aggregate GDP and 8.2 percent of employment last year.
What is of the utmost importance, economists say, is for the countries in the region to deepen financial and corporate sector reforms and restructuring and pay more attention to nurturing domestic markets, in a bid to further strengthen their resilience to external shocks.
They believe that developing Asia would withstand a relatively short period of renewed turbulence in the world economic conditions because of the significantly improved economic fundamentals throughout much of the region since the financial crisis.
(Xinhua News Agency December 17, 2002)
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