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Developing Asia can look forward to a robust recovery in the next two years supported by buoyant exports, strong private demand, and stimulus policy efforts, the Asian Development Bank says. It also urged the fast rebounding economies of East Asia to unwind stimulus measures and called for greater regional coordination.
The bank raised its 2010 growth projection for the 45 economies of developing Asia, including the likes of China and India, to 7.9% from 7.5%. This would mark a strong acceleration from the 5.2% growth in 2009, though it is still well below the record 9.6% growth in 2007. Next year, the bank forecasts growth to moderate slightly to 7.3%, due to numerous uncertainties in the global economy.
"The stronger-than-anticipated export rebound and much-improved consumer confidence have helped the region's economies recover faster than we expected," said Jong-Wha Lee, ADB's chief economist. "We are seeing the newly industrialized and Southeast Asian economies leading the way."
ADB forecasts East Asia, which comprises the likes of China and South Korea, to expand 8.4% this year, slightly higher than the 8.3% predicted in April. The Manila-based lender said higher investment had helped the region, as production and consumer spending have started picking up and exports are recovering strongly.
Emerging East Asia, which includes the ten economies of the Association of Southeast Asian Nations, plus China, Hong Kong, South Korea and Taiwan, is seen growing 8.1% this year, revised up from the 7.7% forecast in April. The bank urged the region to unwind monetary and fiscal stimulus, now that the recovery had become firmly entrenched.
"In terms of policy mix, a strategy of normalizing monetary policy first and consolidating fiscal policy subsequently is more appropriate for most of emerging East Asia," the ADB said. "Considering the need to rebalance the region's sources of growth, there is merit in normalizing monetary conditions through a mix of currency appreciation and interest rate adjustments rather than entirely through policy rate hikes."
The bank urged China to build on recent measures to slow credit expansion, and accelerate the unwinding of expansionary policies by letting its currency appreciate at a pace appropriate to domestic economic conditions. "It's critical for each country to withdraw the stimulus at an appropriate pace but greater regional coordination, especially on exchange rates, could spur regional demand and help global economic rebalancing," said Srinivasa Madhur, senior director of ADB's Office of Regional Economic Integration.
The 2010 growth forecast for China was maintained at 9.6%. "Recent measures to slow credit growth and cool speculation in the property market will likely lead to slower investment in the coming quarter," the ADB said.
The bank upgraded its growth forecast for Southeast Asia to 6.7% this year, from 5.1% in April. First quarter growth in the region, which includes the likes of Indonesia, Malaysia, the Philippines, Singapore and Thailand, had exceeded expectations on account of strong exports, robust industrial production, and improved consumer confidence, it said.
The ADB also raised its growth forecast for South Asia slightly to 7.5% from 7.4%. India's growth projection was maintained at 8.2%. Central Asia's growth projection was raised to 4.8% from 4.7%, while growth in the Pacific island economies is now forecast at 3.8%, versus the 3.7% forecast in April.
However, the bank warned in its outlook report that developing Asia faced numerous downside risks, particularly the sovereign debt crisis in Europe, potential setbacks in the recoveries of the advanced economies, dramatic capital inflows, and exchange rate fluctuations.
The bank said inflationary pressures in the region were manageable but is running above average in most countries. It pointed out that letting the currency appreciate would lower the prices of commodities and imports, helping to put the brakes on inflation.
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