Asia is set to lead the world out of the global financial crisis in spite of the slow recovery in the US and Europe, according to the latest forecasts by the Asian Development Bank.
In a dramatic contrast to its view in March, when it slashed 2009 growth forecasts for Asia excluding Japan from 7.2 per cent to 3.4 per cent, the ADB on Tuesday said the region would grow more strongly than expected both this year and in 2010. “Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” said Jong-Wha Lee, the ADB’s chief economist. The bank said in a major new report that developing Asia would grow by 3.9 per cent in 2009, with the projection for next year increased to 6.4 per cent from 6 per cent. However, Mr Lee said that governments should not take the improved outlook for granted, warning that a sustained improvement would require a recovery in western economies and continued fiscal and monetary stimulus in Asia.
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“The improved regional outlook should not make Asian economies complacent. A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region’s ongoing recovery,” he said. The bank also called for structural changes to increase domestic consumption, improve labour mobility and reduce the region’s over-reliance on exports to the west. The report says that China is likely to record growth of 8.2 per cent this year, with a surge in bank lending and fixed asset investment pushing growth 1.2 percentage points higher than its forecast in March. It says the recovery will be sustained next year, with China’s growth rate rising to 8.9 per cent so long as there is a moderate recovery in the international economy and a continuation of the fiscal stimulus introduced by Beijing this year. The report says that Chinese growth accelerated to 7.9 per cent in the second quarter of 2009 from 6.1 per cent in the first quarter. Most of the improvement was driven by investment, which contributed 6.2 percentage points of overall first half growth of 7.1 per cent. For East Asia as a whole, the ADB upgrades its forecast to 4.4 per cent from 3.6 per cent in March, mainly because of the strength of the Chinese recovery. It forecasts a shallower contraction than earlier expected in South Korea, but a sharper than forecast slowdown in Hong Kong and Taiwan. India is forecast to grow by 6 per cent this year, up from a prediction of 5 per cent in March, in spite of stunted agricultural output and weak exports. The ADB forecasts growth of 7 per cent for 2010, up from 6.5 per cent in March. “The government’s strong fiscal stimulus, complementing the Reserve Bank of India’s aggressive monetary policy easing, has successfully brought last year’s economic slowdown to an end,” said Mr Lee. The report warns, however, that growing state and federal budget deficits in India are not sustainable in the long run, although it judges that growth led by public spending remains appropriate while the global economy is weak. Growth in South East Asia is projected to slow to 0.1 per cent this year — slower than the ADB’s 0.7 per cent forecast in March — because recovery in Indonesia and Vietnam has failed to offset deteriorating prospects for Malaysia, Thailand and smaller economies such as Cambodia.