Southeast Asia suffered a setback on its road to economic recovery in 2003. In the first half of 2003, regional economies were particularly affected by the Iraq War and the Severe Acute Respiratory Syndrome (SARS) outbreak. However, the relatively quick passing of these two major events as well as economic recoveries in the United States and Japan augur well for the region's economic outlook in 2004 and 2005.

According to the Asian Development Bank (ADB), the total economic costs of SARS in East and Southeast Asia are estimated at US$60 billion. The services sector, especially tourism and retail industries, were hardest hit. Nevertheless, the impact of SARS on the region has turned out to be less damaging than earlier anticipated. The epidemic, which broke out in March 2003, was generally contained by mid-2003. In fact, tourist arrivals and retail sales in SARS-affected countries such as Singapore and Hong Kong improved significantly by the third quarter of 2003. Although there are some concerns that SARS may re-occur in the near future, it is expected that the region's public health services would be better prepared to deal with the disease.

The economic outlook appears optimistic, with the region poised for a moderate comeback in 2004. The ADB forecasts that Southeast Asia will grow by 3.9 per cent in 2003 and by 4.9 per cent in 2004. In a recent economic report on East Asia, the World Bank highlighted several reasons for being sanguine, which include:

• The global economy is showing signs of recovery, driven by stronger economic growth from the United States and Japan.

• The world high technology industry is beginning to improve after a three-year slump.

• The emergence of China as a global industrial powerhouse is boosting trade and revitalizing intra-regional production networks in East Asia.

• Domestic economic and financial conditions in the region have significantly improved, e.g., private consumption and investment have strengthened, corporate and banking sectors are healthier.