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ADB sees Asia posting strong growth in '96-97

HONG KONG: Asia will continue to show rapid economic expansion over the next two years, maintaining its position as the world's fastest growing region, the Asian Development Bank (ADB) said on Thursday.

The ADB said in its annual outlook that the developing economies of the Asian and Pacific region should grow 7.1 percent in 1996 and 7.3 percent in 1997, a shade slower than the 7.9 percent pace of 1995.

Newly industrialising economies (NIEs) South Korea, Singapore and Taiwan are expected to grow between six and eight percent in 1996 and 1997.

Hong Kong, also classed as an NIE, is seen growing 4.5 percent a year in that period.

Hong Kong's outlook continues to be dominated by growing integration with China. Production is already shifting to the mainland and a large volume of capital flows to China, as well as trade with China, is being routed through Hong Kong.

Those NIEs that have trade deficits will find the gaps widening, with both exports from and imports to NIE countries seen growing 14 percent per year on average. Of the NIEs, only Taiwan posted a trade surplus in 1995.

The current account surpluses enjoyed by most of the NIEs will increase because of earnings from services and past investments abroad, especially in other NIEs and Southeast Asia.

A widening current account surplus will enable the NIEs to export more capital over the next two years. In the case of South Korea, its large current account deficit is likely to shrink during the next two years as the country moves from being a net capital importer to a net capital exporter.

Government efforts to cool the economy slowed the pace of growth in China in 1995 to 10.2 percent, a rate that nevertheless qualified as the world's fastest.

The ADB said its outlook for China remains optimistic, with output seen rising nine percent over the next two years and inflation declining further to 12 percent on average.

The Central Asian Republics, Kazakhstan and the Kyrgyzstan, continue to suffer the economic difficulties that followed the collapse of the Soviet Union, the ADB said.

Output slumped 8.5 percent in the two economies in 1995 after dropping around 40 percent over the preceding two years.

About 37 percent of the population of Kazakhstan and 40 percent of Kyrgyzstan live in poverty, the agency said.

In Southeast Asia, economic prospects remain bright.

Annual growth is likely to be maintained at over seven percent, led by exports and high rates of investment. Inflation should remain at single-digit levels.

Exports and imports are expected to grow rapidly as these countries open their economies further. But the ADB warned that there are some troubling aspects of macroeconomic policy.

In Malaysia, the public sector borrowing requirement has become quite large and in all these countries attemps to contain money supply growth have been eroded by the large inflow of foreign capital, leading to inflationary pressures.

Indonesia's debt-service ratio remains at a high level and Thailand's ratio, while still modest, could rise sharply.

The Philippines grew 4.8 percent in 1995 and is projected to grow about six percent in the next two years. But structural adjustment needs to be further consolidated before the Philippines can move into its high growth phase, the ADB said.

Cambodia, Laos, Burma and Vietnam grew more than seven percent in 1995, despite the problems all face in the transition to market economies. Vietnam grew 9.5 percent.

In South Asia, several years of structural adjustment are beginning to have some positive effect. These countries are likely to grow at five-six percent over the next two years.

Prospects for the Pacific island economies are not very encouraging, the ADB said. Although the shortfall in Papua New Guinea may be reversed, it is unlikely that these economies will grow more than two-four percent over the next two years.-Reuter