Wed, Dec 07, 2011 - Page 10 News List

ADB slashes growth forecast for Asia

DARK CLOUDS:The Asian Development Bank says the downside risks for emerging Asian markets are growing, caused by the eurozone crisis and slowing US economy


The Asian Development Bank (ADB) yesterday trimmed its growth forecast for next year for emerging East Asian economies including China, as the eurozone turmoil threatens to drag the global economy back into crisis.

The Manila-based bank cut its GDP growth forecast to 7.2 percent for the 10-country ASEAN plus China, Hong Kong, South Korea and Taiwan, from 7.5 percent in September.

The ADB revised its annual GDP growth rate for Taiwan for next year from 4 percent in September to 4.1 percent.

The bank said China’s economic output would grow 8.8 percent next year, compared to its September forecast of 9.1 percent.

It also mapped out an “extreme scenario” of European and US meltdown — which could shave 1.2 percent off growth next year in East Asia including Japan — from a forecast 5.4 percent to 4.2 percent, bank officials said.

“The worst-case scenario is for both the US and eurozone to fall back into recession, pushing the global economy into a deep slump,” the ADB’s Emerging East Asia regional economic update said.

With headwinds blowing out of Europe, the bank said its “cautiously optimistic” outlook for the Emerging East Asia region excluding Japan was under a thickening black cloud compared to its September forecasts.

“The cautiously optimistic outlook for emerging East Asia is subject to much greater downside risks now than just a few months ago,” it said.

It said “major downside risks” included a deep recession in Europe and the US, higher protectionism and persistent inflation.

“Emerging East Asia must prepare for a prolonged crisis and weak post-crisis recovery by implementing appropriate short-term macroeconomic responses and pursuing necessary long-term structural reform,” the report said.

Government spending could help maintain the growth momentum while central banks would have to deftly manage the monetary levers to keep inflation “anchored.”

“With the eurozone’s sovereign debt crisis unfolding and risks of faltering global recovery rising, macroeconomic policy must remain cautious and prudent,” it said.

The ADB said a defense against trouble in Western markets lay in “increasing intra-regional trade and financial integration, and expanding links with other emerging economies.”

Meanwhile, regional financial systems had been “little affected” by volatility in the credit markets and were keeping the investment pipeline liquid, the report said.

“Growth in bank lending, while slowing, remains robust,” it said.

Even so, a sharp downturn in Europe and the flow-on effects on the US would have inevitable ramifications for East Asian banks, especially in financial centers such as Hong Kong, China and Singapore.

Capital outflows could hit regional share markets and consumer confidence, eroding domestic spending.

Tighter global credit would also hurt Asian bank liquidity and possibly increase the cost of borrowing for investors, the ADB said.

Additional reporting by staff writer

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