The Asian Development Bank (ADB) said Monday East Asia's economic growth is expected to pick up next year, helped by a turnaround in the global demand for IT products, a recovery in Japan's domestic demand, and continued strong growth in China.

Gross domestic product (GDP) growth in 2006 for East Asia -- defined as the 10 ASEAN member countries plus China and the Republic of Korea -- will average 7.2 percent, slightly more than estimates of 7.1 percent for 2005, according to the Asia Economic Monitor (AEM) report the bank issued Monday.

AEM, produced by ADB's Office of Regional Economic Integration (OREI), said economic performance in 2006 is expected to vary significantly from country to country. Growth is forecast to ease to a shade below 9 percent in China, compared with the estimated 9.3 percent growth in 2005. However, the pace of growth is likely to accelerate in most other major economies.

Excluding China, emerging East Asia is expected to post average growth of 5.3 percent in 2006. This year these countries' economies are expected to grow by 4.6 percent. Singapore's economy is projected to grow by 6.0 percent, up from 5.2 percent in 2005, while the Republic of Korea's economy will likely grow by 5.0 percent, up from 4.0 percent.

"With the PRC (China) fast becoming a major trading partner for many countries in 'emerging' East Asia, increasing PRC imports should provide additional impetus for these economies," according to the report.

China's economic growth is likely to continue to be driven by strong growth in private consumption and slowing, but robust investment growth, it said. October's import figures for China suggests that the country's imports, after remaining somewhat subdued in the earlier months in 2005 are again picking up.

According to the report, the forecasts are subject to the four major risks. These include a disorderly adjustment of the growing global payments imbalance, a sharp upturn in global interest rates, further increases in international oil prices, and a possible avian flu pandemic.

Continued tightening of monetary policy and fiscal consolidation are needed to sustain robust growth and at the same time keep inflation in check, the report says.

The report welcomes the July 2005 shift by China and Malaysia from a pegged exchange rate against the US dollar to a managed float against a basket of currencies.

But it added that the yuan-dollar exchange rate has not varied much since the one-time revaluation of the yuan by 2.1 percent on July 21. It notes that allowing greater exchange rate flexibility would lessen the need for accumulation of foreign exchange reserves by the central bank and thus help, at least partly, contribute to the orderly resolution of the global payments imbalance.

"Building on the July 21st policy shift, the PRC needs to adopt greater exchange rate flexibility. There is merit in loosening the yuan's tight link to the US dollar as it would foster greater exchange rate flexibility in Asia as a whole and provide a greater opportunity for collective rate movements vis-a-vis the US dollar, " the report states.

The report analyzes emerging East Asia's economic growth, financial and corporate sector restructuring, and emerging policy issues, including the threat posed by an avian flu pandemic.

Source: Xinhua