ADB increases Asia growth forecasts, but warns of risks

 MANILA: Massive stimulus spending throughout the region will power stronger-than-forecast growth in developing Asia this year and next, the Asian Development Bank said Tuesday.
 
The bank said a review of the region’s economies led it to predict growth of 4.5 per cent in 2009 and 6.6 next year after a better-than-expected recovery in the September quarter. However, it added that there were still some threats.


The figures are an improvement on the bank’s forecast of 3.9 per cent and 6.4 per cent in a report in September.

‘The prospects for much of the region look rosier than they did in September when we last did a full study of the region,’ Asian Development Bank (ADB) chief economist Jong-Wha Lee told a news briefing.

He said the ‘V-shaped recovery was due to swift policy responses’ but also because of the resilience of China and India.

India is expected to grow 7.0 per cent this year, a per centage point higher than previously forecast, while China’s growth estimate is unchanged from its September forecast of 8.2 per cent this year, and 8.9 per cent next year.

Asian nations have pumped huge amounts of money into their economies to fight the global downturn, China leading the way with almost 600 billion dollars of boosting measures.

Lee noted that there was ‘a moderate improvement’ in the major export market economies of Europe, Japan and the United States that had helped the region recover.

But while China’s growth would continue to steam ahead next year ‘the speed of that upturn will depend on the performance of the global economy,’ Lee said.

‘The recovery in the G3 (Europe, Japan and US) is still soft and there are a number of downside risks,’ he said.

‘Asia is now leading the recovery from the global recession, but the big question is if this kind of rebound will lead to sustained recovery in 2010,’Lee said.

Developing Asian economies comprise 44 developing member countries of the ADB, plus Brunei, an unclassified regional member.

The report noted that among the risks were a short-lived recovery in developed economies — which are key markets for Asian exporters — premature policy tightening and a slower pick up in private demand.

It noted that among others, oil-rich Dubai’s debt crisis ‘was a reminder of the bumps on the road to recovery.’

‘These existing and emerging problems could hamper and even derail the recovery in emerging East Asia,’ the report said.

Lee noted that the pace of recovery appears uneven, with export driven economies like China, Korea, Taiwan and some ASEAN members expected to recover faster than most.

He said governments must sustain the recovery by continuing with stimulus packages they have put in place.
‘Timing is very important,’ he said, stressing that ‘mis-timed exits’ may derail the recovery process.

‘A key challenge for each economy will be to carefully time when best to roll back the stimulus to ensure sustained recovery but avoid both excessive inflation and hefty fiscal shortfalls,’ Lee said.

Lee said a rush of capital inflows returning to Asia could also destabilize the real economy and lead to reversals. This could be countered with greater cooperation in the areas of exchange rates for example.

‘By working more closely together, Asia can lay solid foundations for long-term economic expansion and ensure it plays a role in reshaping of the global financial and economic architecture,’ Lee said. —AFP