Developing Asia’s growth subdued but steady – ADB Report

HONG KONG, CHINA:  Weak global demand will weigh on developing Asia in 2012 but growth rates in most economies remain robust and should tick back up in 2013 with private consumption providing support, the Asian Development Bank (ADB) says in a new report released  last week.

ADB’s flagship annual economic publication, Asian Development Outlook 2012 (ADO 2012), released today, forecasts gross domestic product (GDP) growth in developing Asia at 6.9% in 2012, rising to 7.3% in 2013. GDP expanded by 7.2% in 2011 after growing 9.1% in 2010, as the region rebounded strongly from the global financial crisis.

“Continued uncertainties in the eurozone and a further slump in global trade pose the biggest threats to the growth outlook,” said ADB Chief Economist Changyong Rhee. “At the same time, Asian economies are gradually diversifying into new markets, private consumption is trending up and the region has limited direct financial exposure to the eurozone—which should help sustain its momentum.”

External trade was subdued in 2011, but domestic demand helped take up some of the slack, with the region’s current account surplus falling to 2.6% of GDP from 4% in 2010. Inflation is gradually easing, but remains a potential threat given volatility in food and fuel prices. A significant dip in investment late in 2011, and the possibility of growing unpredictability in foreign capital flows in and out of the region are other factors policymakers must be wary of.

Asia must be ready to respond to any further major shocks in the eurozone which could stall an exports recovery, dry up trade finance or undermine key global supply chains – where Asia plays an integral role. Most economies in the region have sharply improved finances in the wake of the 2008 global financial crisis and have the capacity to respond to further external weakness.

“There is no clear case for short-term policy responses, but if inflationary pressures build up again and capital inflows resume, there may be a need to readjust monetary policy to maintain price stability,” Rhee said.

In the longer term, policymakers will need to strike a balance between paying down debt while supporting growth that is both inclusive and environmentally sustainable.

Across the region, East Asia will see a deceleration in growth to 7.4% this year from 8.0% in 2011, weighed down by weaker exports and investment. People’s Republic of China, the world’s second largest economy, will lead the way with growth set to moderate to 8.5% and 8.7% for 2012 and 2013, down from 9.2% in 2011.

South Asia will also remain subdued with growth of 6.6% in 2012, tempered by weak demand and fiscal limitations. The pace of expansion will accelerate to 7.1% the following year, driven by the Indian economy, which is projected to rise to 7.5%.

Southeast Asia will see growth quicken, with GDP expanding to 5.2% in 2012 from just 4.6% in 2011, on the back of the continued recovery in the Thai economy.

Central Asia will see little change in economic activity for 2012, with projected growth of 6.1% reflecting the weak conditions in the eurozone and sluggish growth in the Russian Federation.  Growth in the Pacific is set to moderate to 6.0% in 2012 and 4.1% in 2013, as Papua New Guinea, the largest economy in the region, sees a winding down of infrastructure projects that stimulated growth in 2011.