PRESS CONFERENCE ON 2003 ASIA AND PACIFIC ECONOMIC SURVEY

Despite the lacklustre performance of the global economy in 2002, developing economies in the Asia-Pacific region performed surprisingly well, achieving a 5 per cent growth during the year, Murari Raj Sharma, Permanent Representative of Nepal to the United Nations, told correspondents at a Headquarters press conference today.

That expansion, which reflected a 2 per cent increase over 2001, was attributed to surging inter-regional trade, fiscal stimulus and monetary easing, Mr. Sharma said as he launched the report “Economic and Social Survey of Asia and the Pacific 2003:  Asia-Pacific Economies –- Resilience in Challenging Times”, published by the Economic and Social Commission for Asia and the Pacific (ESCAP). 

He was flanked by Ian Kinniburgh, the Director of the Development Policy Analysis Division of the Department of Economic and Social Affairs (DESA), and Kazi A. Rahman, Senior Economic Affairs Officer from the regional commissions New York office.  The publication was simultaneously launched in New York, Bangkok and several other regional capitals.

Mr. Sharma said prospects for 2003, however, were conditioned by the intensity and duration of the war in Iraq and its negative ripple effects, including on energy prices.  The region imported 40 per cent of its energy needs.  Also, and to a considerable extent, prospects depended on the sustainability of enhanced interregional trade and a supportive domestic policy stance.  The impact of the newly identified Severe Acute Respiratory Syndrome (SARS), as well as growth in the United States, Japan and Europe would also impact on 2003 prospects.

The survey said, given the absence of any evidence of a strong pickup in the global economy in the first half of 2003, the war in Iraq and other geopolitical uncertainties, sustaining growth in the region would depend on domestic policies, he continued.  Since by early March this year neither the war in Iraq nor SARS had occurred, the impact of those events on forecasts made in the survey were still the subject of considerable debate and there was as yet no consensus on how the regional economy might be affected by them.  The two events however, combined with lower growth in the developed economies, carried the potential to pose significant downside risks.

In the short-term, he said, the most obvious and serious risk was what happened in the aftermath of military action in Iraq.  While the war there appeared to be winding down and its impact on the country’s oil industry seemed to be minimal, its political and security impact on the Middle East could be more long-lasting.  The global economy, too, had been adversely affected by the uncertainty leading up to the war.  That was unlikely to be reversed immediately upon cessation of hostilities.

With regard to SARS, the survey noted that it was too early to determine its impact on the region with precision.  For now, SARS had not yet peaked and

its impact could well extend beyond the second quarter of 2003.  Its main impact would be on tourism and travel and, thus, on hotels, restaurants and retailing.  If SARS became long lasting, its impact would extend into actual production declines and job loses in other sectors.

According to the survey, he said, at the moment most private sector forecasts predicted an overall output loss of between 0.1 and 0.5 per cent for the region concentrated mainly in Honk Kong, China, Singapore and Thailand; the economies with large tourism sectors; and to a smaller extent in Indonesia and Malaysia.  SARS’s impact on China itself was considered marginal, at this stage.  The survey sounded an optimistic note, indicating that if the spread of the disease was contained by June, there could be a significant bounce-back in the third and fourth quarters of the year in the regional economy.

The faltering momentum of growth in the United States and in Europe, despite very low interest rates, and the anaemic Japanese economy, were likely to impact on export growth and continue to undermine business confidence in the region.  According to the survey, the United States, European Union and Japan accounted for approximately 50 per cent of exports from regional developing countries.

In the face of persistent uncertainty and other downside risks, he added, governments of the region had to strive to sustain gross domestic product growth by several policy responses.  Among them were maintaining the momentum of structural reform, maintaining commitment on trade liberalization, taking measures to enhance productivity and competitiveness, highlighting the importance of health and education, striving for macroeconomic stability and improving governance and transparency at all levels.

He said the survey had a detailed analytical chapter on the role of public expenditure in the provision of education and health.  The public sector was still a major provider of education and health in countries of the region and the share of public expenditure going to education and health increased in the majority of the countries over the past two decades.  Given the large resources required for those key areas, the survey said the responsibility for funding could not be that of the public sector alone, but of multiple channels that involved civil society and the private sector.  It also called for directing more education and health resources to the rural areas, poor people and women.

On the environment, he said, the survey observed that while rapid economic growth was essential for poverty reduction, it also had adverse environmental impacts, including degradation of agricultural land, depletion of forests, increased air and water pollution, and ecosystem damage, among many others.

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