MANILA, Nov 9: Asia’s economic growth would drop sharply this year and in 2002, as the shadow of terrorism pushes the region’s main export markets into a deeper-than-expected downturn, the Asian Development Bank (ADB) warned on Friday.

“The world faces a deeper, longer (downturn) and more synchronized period of declining economic performance,” ADB vice-president Shin Myoung-Ho told a news conference as the bank released its revised annual Asian Development Outlook projections.

What was expected to be a “short correction” in the rapidly-growing information technology industry in the United States had spread to other sectors and other regions, he said.

In the revised report, the Manila-based bank said the United States would grow by only one per cent this year and 1.0-1.5 per cent next year while the “Euro area” should expand by 1.8 per cent this year and 1.8-2.3 per cent in 2002.

The Japanese economy, it said, would contract by 0.5 per cent this year and post zero growth next year.

The lacklustre performance in the three major areas would drag down growth in Asia’s developing economies to 3.4 per cent this year and 4.5 per cent next year.

The ADB said global recovery should start “perhaps as early as the second quarter” next year, with conditions strengthening for the rest of the year as the effects of fiscal and monetary stimulus measures kick in.

The bank painted a grim short-term picture for Pakistan, with the war beyond its northwestern border causing major trade disruptions and compounding drought to limit growth to 2.6 per cent this year and three per cent next year, compared to 3.9 per cent last year.

“The direct impact on the frontline on South Asia is most severe on Pakistan,” ADB official Yoshihiko Iwasaki said.

Senior ADB economist Brahm Prakash warned that the Asian projections could change for the worse if there was “prolonged conflict” in Afghanistan and the economies of the United States and Japan deteriorated.

But as a US-led military campaign goes into high gear in Afghanistan to hunt down the alleged attackers of the World Trade Center and the Pentagon, the ADB “expect it to be over, and resolved, soon,” he said.

The main concern for the US economy is further erosion of confidence, “prompting a reversal of financial flows, a sharp contraction of the current account deficit, and disruptive exchange rate corrections causing market turmoil and reduced import demand.”

Shin said that the September 11 attacks had led to a “short-to medium-term supply shock” due to disruption in business activity and rising business costs.

There was also a “demand shock” amid weakened consumer confidence and business sentiment, he said.

Prakash said the “main story” for Asia and the Pacific was the projected five per cent drop in merchandise exports this year, compared to growth of more than 20 per cent last year.

Exports should rise by six per cent in 2002, he added.

Merchandise imports would also fall by more than three per cent this year before recovering to post 7.2 per cent growth next year, compared to near 25 per cent growth in 2000.

With Singapore, Taiwan and Hong Kong expected to fall into recession, Asia’s tiger or newly industrialized economies will barely grow in 2001, the ADB said.

Last year, developing Asia grew seven per cent while the newly industrialized economies expanded at an even more dizzying pace of 8.4 per cent.

The ADB did not change its 2001 gross domestic product (GDP) growth forecast for China at 7.3 per cent, but cut its 2002 projection by half a percentage point to 7 per cent.

Earlier this year, the ADB had forecast 5.3 per cent GDP growth for developing Asia in 2001 and 6.1 per cent next year.

The original growth forecasts for the tiger economies were 4.3 per cent this year and 5.6 per cent next year.

Shin said Asia has “strong economic fundamentals” and were making the appropriate policy response to the downturn, leading the bank to be “cautiously optimistic about economic prospects of developing Asia and the Pacific over the medium term.”

Capital flows to Asia are likely to fall with dire consequences projected for weak companies by the ADB.—AFP