RAWALPINDI, Jan 10: Developing countries in Asia and the Pacific region are expected to see a moderate slowdown in economic growth, from 8.2 per cent in 2007 to 7.8 per cent in 2008, according to the ‘Key Economic Developments and Prospects in the Asia-Pacific Region 2008’ released on Thursday by the UN regional commission for Asia and the Pacific (ESCAP).
The report, third in an annual series that provides an end-of-year report on the region’s economic performance in a rapidly changing global and regional environment, says the outlook for 2008 is robust, with developing economies projected to grow by 7.8 per cent. However, the risks to the 2008 projections are increasingly tilted to the downside.
However, it says, the region is expected to face a difficult external environment, with a slowdown in the United States economy and continued appreciation of regional currencies. Japan is forecast to grow at a lower rate in 2008, as its export sector and export-related investments suffer from a slowing US economy. Continued strong growth in China and buoyant commodity prices are expected to generate export opportunities for economies in the region.
In Pakistan, the ESCAP report says, exports were weak but the country has benefited from surging fixed investment and private consumption.
Strong domestic demand would be an added support, both through consumption in fast-growing countries and fiscal policy accommodation. The strong fiscal position of nearly all countries in the region is likely to enable accommodative policies in response to external-sector weakness in coming months.
The report says countries throughout the region are expected to experience lower current account balances in 2008 due to weakness in merchandise exports. One factor will be the economic slowdown in the United States and lack of demand support from other non-Asian markets. Downward pressure on exports will also come from the continued exchange rate appreciation in countries of the region against major trading partners, points out the report.
The report reveals that the major downside risk to the forecast for 2008 emanates from outside the region: the possible effect of spillovers from the downturn in the United States housing market. The broader effect on the real sector of the housing market weakness largely remains to be played out.
The scale of losses in the sub-prime sector is expected to increase considerably in coming months. The sub-prime market difficulties could be a possible harbinger of larger debt problems in the housing market.
The widespread decline in the value of housing assets and tighter credit conditions would lead to a reduction in consumer spending and imports. The United States slowdown to date has been notable for affecting mainly residential investment, while consumption has held up reasonably well.
The resulting slowdown in growth would lead to further downward pressure on United States interest rates to stimulate the economy. Consequently, the value of the dollar would fall further.
Asia-Pacific economies would thus face a situation in which the prices of their exports to the United States would be higher and the demand for their products would be lower owing to declining consumption in that country.
Economies in the Asia-Pacific region remain highly reliant on exports, both directly and indirectly through supplying intermediate inputs for Chinese exports. Dependence on exports is greater for all economies than in the pre-1997 crisis era, except for Indonesia and the Philippines, it says.
