Asia-Pacific leads world in growth performance
Bangkok – Asia-Pacific developing economies reported impressive growth in 2006 reflecting "on-going integration and growth of the global economy," the UN's regional arm, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), reported in its latest Survey.
The Economic and Social Survey for Asia and the Pacific 2007 said expansion was concentrated in industrial and service sectors leading Asia Pacific developing economies to report growth of 7.9% in 2006, up from 7.6% the previous year – marking the eighth straight consecutive year of expansion.
"The dynamic growth seen in the world economy in 2006 has largely been driven by developing Asia-Pacific countries," it said.
Asia-Pacific countries in 2006 accounted for over 30% of global output (gross domestic product GDP) based on purchasing parity terms and accounted for 58% of world GDP growth based on the same scale.
"The continuing buoyancy of external demand remained a source of growth for many countries, as the anticipated slowdown in the United States failed to materialize and the continuing revival of the Japanese economy provided added stimulus," the Survey said.
The report noted growth took place against a riskier international environment, especially concerns of an abrupt depreciation of the United States dollar and volatile oil prices. "High and volatile oil prices were one of the central sources of difficulty in macroeconomic management in the region in 2006," the Survey adds.
Inflationary pressures in oil importing countries intensified as global oil prices peaked at US$70 a barrel. Inflation concerns came as reductions in fuel subsidies occurred through the year in China, India, Malaysia and Taiwan Province of China. This triggered tighter monetary polices and higher interest rates to curb inflation.
But the region has learned to adjust to higher oil prices, shifting demand to alternative sources, or by using other means of travel such as mass transit. Energy conservation was spurred on as oil prices spiked in mid-2007 above US$70 a barrel. And despite an easing in prices, global oil markets are watching closely political and economic developments in the Middle East.
Global economic environment concerns focussed in the widening of the United States' current account balance by a further US$100 billion in 2006, amid a slowing in the vital U.S. housing market. Both indicators led to fears of future currency volatility.
But despite these concerns, 2006 was marked by a climate of generally positive growth across the region. A revival in the electronics sector lifted prospects for economies in North and South-East Asia, while oil exporting countries gained from the higher oil revenues.
The Islamic Republic of Iran, Russian Federation, and the Central Asian countries, such as Azerbaijan and Kazakhstan, all benefited as oil exporters, as did South East Asian economies of Brunei Darussalam, Malaysia and Viet Nam.
India, the region's other dynamic growth driver, expanded strongly by 9.2% in 2006 – up from 9.0% a year earlier. The information technology (IT) sector and back-office services continued as a vital contributor to growth. India's manufactured exports also surged. In U.S. dollar terms these exports, dominated by capital intensive engineering, chemicals and petroleum products, grew 37.3% year-on-year from April to September 2006.
China was a key destination for India's iron and steel exports, while India's automotive sector also expanded rapidly.
China's growing economic power remained a focus of international attention. China's economy grew by 10.7% in 2006 from 10.4% the year before with China contributing 32% of world GDP growth from 2001 to 2004 in purchasing parity terms. On this basis by 2005 China's economy was now the world's second largest economy and third largest when based on trade.
The Survey found that trading links to China as a production hub have intensified. China is a key source of demand for major commodities, ranging from aluminium, steel, copper and coal. China's imports from Asia were up 19% in 2006 to US$526 billion, or 66% of its total imports. The shift in trade is reflected in more countries in the region enjoying a trade surplus with China – except India.
Domestic demand was the key driver for growth in South and South-West Asia, with especially strong investment in India and Turkey. In East and North Asia generally, economic growth was strong at 8.5% – largely due to heavy investment in China but buoyed by positive investment and consumption in Hong Kong, China and Macao, China.
The Republic of Korea's economy grew 5.2% in 2006 from 4.0% in 2005 despite central bank raising interest rates on three occasions to cool lending and local housing demand.
In South-East Asia, Indonesia, Malaysia, the Philippines, and Thailand have all reported significant progress since the Asian financial crisis of 1997. From 1999 to 2006 these countries' average per capita income grew by more than 8.0%.
"Enormous strides were made in reducing the poverty and unemployment that had resulted from the events of 1997," the Survey said.
The Pacific island countries also enjoyed positive growth. This growth came despite political and social concerns in some key territories. Growth ranged from slightly less than 2% in Tonga to over 6% in Vanuatu, where the services sector was a key contributor to economic expansion. In Papua New Guinea, the primary/agriculture sector was the main engine to GDP.
Modest growth was enjoyed by the region's three main developed countries – Australia, New Zealand and Japan. But capacity constraints raised inflationary pressures in Australia and New Zealand. In Japan, with growth at 2.2%, the main hope was that limited growth in wages amid labour shortages would not undermine the gains of recent years.
But there are items to watch amid this upbeat picture. Developing countries across the region accumulated foreign exchange reserves to reach an unprecedented level of US$2.5 trillion by year's end. China accounted for 40% of the reserves of developing countries in the region, representing close US$1.0 trillion.
The Survey calls for policy makers to review the costs and benefits of holding excessive reserves. "It may be time," it says, "for countries to channel reserves into more productive investments, such as infrastructure."
As the region's oldest and most comprehensive annual review of economic and social developments, UNESCAP's Economic and Social Survey of Asia and the Pacific provides the only independent source of analysis covering all countries in this vast and diverse region, and considers both the social and economic spheres of development. The 2007 Survey, entitled "Surging Ahead in Uncertain Times," looks at the most critical issues, challenges and risks our region faces in the months ahead.
Headquartered in Bangkok, Thailand, UNESCAP is the largest of the UN's five Regional Commissions in terms of membership, population served and area covered. The only inter-governmental forum covering the entire Asia-Pacific region, it aims to promote economic and social progress.