While all the economies in the region will slow, they will still achieve solid growth. External demand will soften as growth rates subside in industrial nations, though domestic demand will increase in Hong Kong, China; Korea; and Taipei,China. Consumption demand in the PRC is projected to rise, providing some counter to the targeted reduction in fixed asset investment.
The PRC’s economy expanded at a cracking 10.7% in 2006, the fastest rate in 10 years, with manufacturing, construction and other industry the main contributor, while investment accounted for much on the demand side. The Government’s efforts to restrain fixed asset investment pulled its growth down from about 30% in the first half of the year to 21% in the second. Foreign exchange reserves soared above $1 trillion by year end. With excess capacity in some industries and strong competition in manufactured products, inflation slowed to 1.5%.
Steps taken to cool the economy included administrative measures to restrain investment and market-oriented tightening. GDP growth is expected to ease to 10% in 2007. Growth of industry is forecast to slow about 1 percentage point to 11%, while agriculture is expected to benefit from a new official emphasis on rural development and services from higher incomes. Over the medium term (2007–2011), GDP growth is expected to average about 9%.
The economy of Hong Kong, China grew robustly by 6.8% in 2006, a third successive year of above-trend growth. Closer links with the booming mainland benefited the economy in several ways: through re-exports of PRC goods, and through now-substantial financial services exports to the PRC. In 2007, GDP growth is projected to slow to 5.4%, given the expected slowing in the PRC and United States economies. Consumer spending is expected to strengthen on the back of generous budget givebacks announced in early 2007. Inflation is seen easing from 2% last year to 1.6% this year as the budget initiatives exert downward pressure on prices.
The Republic of Korea enjoyed its fastest growth rate in 4 years, at 5.0% in 2006. It was spurred by a recovery in domestic demand and strong exports. Private consumption posted the best rate of expansion since the credit card crisis of 2003. The recovery broadened with a pickup in capital investment as companies invested in machinery and equipment.
This year, Korea is likely to see a continued expansion of investment in manufacturing, joined by greater housing investment. Private consumption growth, weighed down by high levels of household debt, is expected to continue, although at a moderate pace. However, growth in exports will ease as a consequence of the slowdown in the US. Rapidly rising imports, driven in part by demand for overseas travel and education, will cut by half the contribution of net exports to GDP growth. The economy is forecast to grow by 4.5% this year, slowing from 2006. Inflation will inch up from 2.2% to 2.4%.
With copper and gold prices high and a mild winter, growth in Mongolia’s mining and agricultural-based economy lifted to 8.4% in 2006, its fourth straight year of 6%-plus expansion. Growth is forecast to decelerate in 2007 with mineral prices tipped to stabilize, tempered PRC growth, and an expected leveling out of livestock growth rates. Inflation, which often runs at relatively high levels, receded to just over 5% last year and will be a bit above that level in 2007.
Strong exports accelerated growth to 4.6% in Taipei,China in 2006, with high demand for optical equipment, electronics, and machinery. Domestic demand, though, was subdued for most of the year, damped by a tightening of consumer credit that followed the bursting of a credit-card bubble in late 2005. This year, consumption and investment demand are expected to pick up, cushioning the economy from an expected slowdown in external demand. On balance, that will leave GDP growth at 4.3% in 2007, while inflation will remain at a low 1.6%, compared to just 0.6% in 2006.
