Asia: Brighter Prospects, But At Risk from Fragile Global Economy

High oil and gas prices buoy region’s hydrocarbon exporters

Though global demand weaker, growth still robust across all countries

Governments should strive to bolster buffers, reduce inequality

But a sharp slowdown in global economic activity could pose a risk to the forecast for the region’s eight countries, Middle East and Central Asia Department Director Masood Ahmed told reporters in Washington.

So far, the impact of the euro area crisis has been limited, Ahmed said, adding that despite a weaker external environment, oil and gas demand is expected to remain high this year and next, driving the region’s continued high growth.

“The region’s oil and gas exporters benefitted from the high price of oil, while the oil and gas importers benefitted from the continued recovery in Russia, which has brought a steady increase in workers’ remittances,” Ahmed observed.

High exports, strong public spending

The region’s oil and gas exporters—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—saw 6.8 percent growth on average in 2011 (see table). With oil and gas prices forecast to remain high this year and next, growth is expected to remain strong. Because of a weaker external environment, growth will be slightly lower in 2012, at 5.7 percent. But this group of countries should be able to maintain high export levels and sustain activity in areas outside the oil sector through continued public spending.

The region’s oil and gas importers—Armenia, Georgia, the Kyrgyz Republic, and Tajikistan—grew by 6.2 percent last year. Because of lower levels of global demand, these countries are likely to see a moderation in export growth, but this decline will not amount to anything approaching the sharp collapse seen in 2009. Growth for these countries is expected to reach 5.3 percent in 2012.

Remittance inflows to...