Asia's developing economies, the fastest growing nations in the world, will expand much more this year than previously expected, but a credit crunch in the West may take a toll in 2008, the Asian Development Bank (ADB) said on Monday.
The Manila-based multilateral agency said growth in Asia, excluding Japan, should average 8.3% in 2007, up from a forecast of 7.6% just six months ago. The region grew 8.5% last year.
The ADB forecast growth of 8.2% in 2008, up from an earlier prediction of 7.7%, but left open the possibility of downward revisions amid concerns of overspill into other markets from recent losses in the U.S. subprime mortgage sector.
"It is still early days and events in credit markets and the broader economy have become more difficult to predict," it said in its updated annual economic outlook. "It is not clear whether the storm has blown itself out or merely paused." "It would certainly be rash to assume that growth in developing Asia, particularly in 2008, would be immune to these unfolding processes."
But the ADB also said Asia was in a strong position to withstand external shocks, including a recession in the United States, the main market for its export-led economies.
"If a recession of recent median depth and duration occurred in the United States -- an event that has a low but rising possibility -- a deceleration of growth in developing Asia by 2.0 percentage points would be at the upper end of plausible estimates," it said, adding that a 1.0 percentage point slowdown was more likely.
"This could possibly prune growth to a range of 6% -7% from a baseline prediction of 8.2% in 2008."
Surge This Year
The ADB said growth in the region this year will be spearheaded by rapid expansion in China and India, which together account for about 55% of regional GDP.
It forecast growth in China at 11.2% in 2007, up from its March forecast of 10%, and at 10.8% in 2008.
India's economy will expand 8.5% in 2007, up from the previous forecast of 8.0%, and grow another 8.5% in 2008.
"Though these two countries' imprint dominates, a more general pattern of fast and, in places, accelerating growth is evident," the ADB added. "The Philippines enjoyed its fastest growth in almost 20 years in the first half of 2007 and Indonesia's trend growth rate is steadily edging up. "Central Asia, with oil and gas prices remaining high, continues to expand at a double-digit pace. "So far, downside surprises have been few."