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China and India – Engines of Growth in Asia

Updated On: Sep 18, 2007

Developing Asian economies look set to grow by over 8% spurred by strong growth momentum in China and fast growth in India

China continued at a breakneck pace of 11.5 % in the first half of 2007 and India grew by an 18-year high of 9.3% in the 2nd quarter of this year. However, regional growth outside of China and India is a much more modest 5.7% for 2007 and 5.6% for 2008.

In a regional update, the Asian Development Bank (ADB) also reported improving investment climate in Indonesia that would see the country posting GDP growth of 6.2 to 6.4 percent in 2007-08.  Growth in Indonesia will be supported by higher rates of credit expansion to the private sector as bank and corporate balance sheets strengthen, and expected increased in government infrastructure outlays.

Despite continued political problems, the Philippines economy will continue to grow at a respectable 6.6% .

The best-performing economy in Southeast Asia is Vietnam which will see over 8% growth for 2007 and 2008.

Thailand’s economy however is growing below its potential and missing out on Asia’s robust growth, according to ADB country director to Thailand, Mr Jean-Pierre Verbiest.  The ADB forecast for Thailandin 2007 is 4% for 2007, and to achieve a growth rate of 5% for 2008, Mr Verbiest said that “the government must put in a credible economic programme after the election, restore consumer confidence, especially business confidence to stimulate private investments”.  It would also need to “raise competitiveness through productivity and innovation”, he added.

The ADB regional update also warned of a “modest slowing of growth” next year due to higher risk factors such as a tightening in credit market, continued volatility in oil prices and a possible US recession.   However, ADB Chief economist, Ifzal Ali believed that the Asian economies would weather the US recession well, and in an ADB scenario which includes depreciation of the US dollar, growth in Asia may slow by 1-2%.

Simultaneous steep downturns in the US, the EU and Japan – an event that the ADB judges improbable – would put the region at a greater risk. However, Asia with it robust foreign reserves, improved financial systems and strong economic fundamentals would be better able to weather the storm.  Therefore, according to Mr Ali, the fate of Asia essentially “lies within Asia”.

In a separate report that Asia should take note of, the International Energy Agency is urging East Asian and Asean countries to beef up oil reserves to ease the impact of oil price volatility.  Mr William Ramsa, deputy director of IEA noted that oil reserves in East and Southeast Asia now stand at 30 days, five times lower that in other IEA member nations, putting them at risk of a supply shortage.  Adding that any events from natural disasters, oil refinery capacity constraints to geopolitical tensions, terrorism and other unexpected events can lead to severe market volatility and impact the growth of Asian economies.  Asian economies should therefore take note of this warning and strive towards greater regional cooperation on energy security in general, and oil stockpiling in particular.

Sources:

IEA urges Asian countries to lift strategic oil reserves (Bangkok Post, 17 September 2007)

ChinaIndia spur growth in developing Asia: ADB (Antara, 17 September 2007)

ADB raises Indonesia 2007-08 growth forecast to 6.2-6.4 pct (Antara, 17 September 2007)

Thai economy falling behind (Bangkok Post, 17 September 2007)

ADB predicts Viet Nam’s economy to expand rapidly (Vietnam News Agency, 17 September 2007)