Asia's growth picking up, but still low


South Korea is tipped to lead the region's advanced economies this year, with forecast growth of 5.8 percent

By Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Asia-Pacific economic growth will accelerate to 2.7 percent this year from just 1.2 percent last year, and then to 3.8 percent in 2003, a new report shows.

But these growth rates are still way below historical standards, according to the coordinator of the Pacific Economic Outlook, Professor Ross Garnaut of the Australian National University.

"Last year was very bad for the region," Garnaut told CNN Wednesday, noting that the only comparable year was 1998, when Asia was still in grip of a financial and economic crisis.

He said while it was clear the region's growth was accelerating, it was a moderate recovery.

"Even this (3.8 percent growth) outlook leaves 2003 weaker than any between the U.S. recession at the beginning of the 1990s and the financial crisis year of 1998," he noted in an overview of the Outlook, which is compiled annually by a group of experts on each economy.

Reversion to protectionism


China should hit 7.5 percent growth this year, according to the Outlook

Garnaut told CNN that the world had recently seen a "terrible reversion" to protectionism in the United States.

The recent U.S. farm and steel bills together probably constituted "the worse bit of U.S. protectionism since the 1930s", he said.

The Outlook forecasts growth in the U.S. this year of 2.5 percent, picking up to 3.3 percent next year.

In his overview comments, Garnaut said there was a concern among the Outlook forecasters that the U.S. was acting as a "unilateral agent in international economic affairs, rather than as a leader in the multilateral system."

The standout performers in the region this year are, as expected, China with 7.5 percent growth and Vietnam with 7.0 percent.

South Korea leads the advanced economies with 5.8 percent, followed by Singapore with 3.8 percent and Australia with 3.7 percent.

The Outlook notes that China's figure is "reassuring", but says the main issue is whether China can keep growing with weakness in the region.

"China's import growth will help the rest of the region, though its role as a host of foreign investment has important implications," it says.

Exchange, energy risks


One of the key risks to the forecasts is volatility in exchange rates

Garnaut identified the key risks in the forecast as those related to changes in foreign exchange markets, driven by reassessments of the value of holding U.S. dollar assets.

"There are also risks in energy markets, and an important issue in some economies is the strength of the likely El Nino effect."

Garnaut told CNN Wednesday that the era of fast growth was over for Japan, but at least it would show some expansion in the months ahead.

The 2002 full-year forecast for Japan is a contraction of 0.4 percent, followed by 1.5 percent growth next year.

The Outlook notes that Japan's growth is "highly dependent" on the value of the yen and the U.S. economic rebound.

"The short-term problem is the low level of domestic demand (in Japan), associated with household uncertainty and falling wealth as a result of deflation," it says.

"Investment continues to detract from GDP growth. Supply-side issues matter more in the longer term."

The Outlook's release Wednesday coincides with the latest Japan industrial output figures, showing production grew 0.2 percent in April over the previous month.

While it was the third straight month of gains, the increase was lower than the consensus forecast of a 1 percent rise.

Japanese think tanks suggested last week the economy probably expanded at its fastest pace in two years in the first quarter of 2002, but there are doubts about the sustainability of the recovery, given the fragile domestic demand.

In contrast, figures released in Seoul Wednesday show South Korea's industrial output grew a better than expected 1.8 percent in April, evidence of the strength of the country's performance so far this year.