The Asian Development Bank on Wednesday slashed its forecasts for growth in emerging Asia, highlighting a significant slowdown in the region's giants, China and India, and warning of the potential for sudden flows in capital out of the area.
In an update to its Asian Development Outlook, the bank forecast gross domestic product in developing Asia to expand 6.1% in 2012, compared with the 6.9% it projected in April, and 6.7% in 2013, versus 7.3% in its earlier report.
That reflected substantial downgrades for the region's two largest economies: China is now seen growing 7.7% this year, compared with an earlier estimate of 8.5%, and 8.1% next year versus 8.7%. India's forecasts were cut to 5.6% from 7% for 2012, and to 6.7% from 7.5% for 2013.
"Developing Asia must adapt to a moderate growth environment, and countries will need to do more to reduce their reliance on exports, rebalance their sources of growth, and increase their productivity and efficiency," ADB Chief Economist Changyong Rhee said.
The development bank said it saw no region-wide need for policymakers to respond to the deterioration in the outlook. But it said most emerging Asian economies had room to apply stimulus, with lower inflationary pressures increasing that scope.
It warned that further deterioration in the European sovereign debt crisis, or failure by U.S. lawmakers to agree on how to deal with tightening steps that will otherwise automatically come into effect—the so-called fiscal cliff—could have "disastrous spillovers" to the rest of the world, especially developing Asia.
Even in the absence of a major global shock, the region remains vulnerable to sudden swings in investor perceptions of major developed economies, it said, stressing the importance of bolstering policies to control capital flows.
"While the region's financial markets have been relatively resilient, the deleveraging of large banks in advanced economies could, together with heightened global uncertainty, cause investor confidence to ebb and sharply reverse capital inflows to developing Asia, as happened in 2008 and 2010," it said.
The ADB said the weakening in developing Asia reflected a slowdown in China, India and other highly open economies. East Asia will remain the fastest-growing part of the region, but subdued global demand will weigh.
Joseph Zveglich, ADB assistant chief economist, told reporters he anticipated only a minor and temporary impact from tensions between China and Japan over the ownership of a group of islands, which have led to the shuttering of some Japanese companies in China.
"It is not in the magnitude of the Thai flood last year, which led to prolonged closure of business," Mr. Zveglich said. Growth in South Asia will shrink as inflation hampers the ability of officials to support demand.
In Southeast Asia, the ADB expects activity to pick up, due to a rebound after flooding in Thailand, and government spending in Malaysia and the Philippines.
On Myanmar, the ADB raised its forecasts for growth to 6.3% in 2012 and 6.5% in 2013. But it stressed it would take time before the private sector could drive the country's economy, with steps needed to improve power supply, education, and connectivity with neighboring countries, as well as financial sector reforms.
In central Asia, output growth is set to cool in response to stabilization in oil prices and weaker external demand, while the ADB tips the Pacific island economies to expand at a robust pace this year, with the rate of growth slowing in 2013 as major infrastructure and resource projects are completed.
wsj.com
In an update to its Asian Development Outlook, the bank forecast gross domestic product in developing Asia to expand 6.1% in 2012, compared with the 6.9% it projected in April, and 6.7% in 2013, versus 7.3% in its earlier report.
That reflected substantial downgrades for the region's two largest economies: China is now seen growing 7.7% this year, compared with an earlier estimate of 8.5%, and 8.1% next year versus 8.7%. India's forecasts were cut to 5.6% from 7% for 2012, and to 6.7% from 7.5% for 2013.
"Developing Asia must adapt to a moderate growth environment, and countries will need to do more to reduce their reliance on exports, rebalance their sources of growth, and increase their productivity and efficiency," ADB Chief Economist Changyong Rhee said.
The development bank said it saw no region-wide need for policymakers to respond to the deterioration in the outlook. But it said most emerging Asian economies had room to apply stimulus, with lower inflationary pressures increasing that scope.
It warned that further deterioration in the European sovereign debt crisis, or failure by U.S. lawmakers to agree on how to deal with tightening steps that will otherwise automatically come into effect—the so-called fiscal cliff—could have "disastrous spillovers" to the rest of the world, especially developing Asia.
Even in the absence of a major global shock, the region remains vulnerable to sudden swings in investor perceptions of major developed economies, it said, stressing the importance of bolstering policies to control capital flows.
"While the region's financial markets have been relatively resilient, the deleveraging of large banks in advanced economies could, together with heightened global uncertainty, cause investor confidence to ebb and sharply reverse capital inflows to developing Asia, as happened in 2008 and 2010," it said.
The ADB said the weakening in developing Asia reflected a slowdown in China, India and other highly open economies. East Asia will remain the fastest-growing part of the region, but subdued global demand will weigh.
Joseph Zveglich, ADB assistant chief economist, told reporters he anticipated only a minor and temporary impact from tensions between China and Japan over the ownership of a group of islands, which have led to the shuttering of some Japanese companies in China.
"It is not in the magnitude of the Thai flood last year, which led to prolonged closure of business," Mr. Zveglich said. Growth in South Asia will shrink as inflation hampers the ability of officials to support demand.
In Southeast Asia, the ADB expects activity to pick up, due to a rebound after flooding in Thailand, and government spending in Malaysia and the Philippines.
On Myanmar, the ADB raised its forecasts for growth to 6.3% in 2012 and 6.5% in 2013. But it stressed it would take time before the private sector could drive the country's economy, with steps needed to improve power supply, education, and connectivity with neighboring countries, as well as financial sector reforms.
In central Asia, output growth is set to cool in response to stabilization in oil prices and weaker external demand, while the ADB tips the Pacific island economies to expand at a robust pace this year, with the rate of growth slowing in 2013 as major infrastructure and resource projects are completed.
wsj.com
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