The Asian Development Bank (ADB) yesterday said that the region’s emerging economies would pick up this year, but warned that the recovery remained fragile due to the eurozone crisis and tensions in Asia.
The Manila-based lender said in its latest forecast that the uptick in China’s economy and “robust growth” in Southeast Asia would lead expansion, which would be also boosted by strong domestic consumption.
The bank estimated that GDP for developing Asia, which covers 45 nations, was set to grow 6.6 percent this year before edging up to 6.7 percent next year.
Growth slowed to 6.1 percent last year, the lowest since 2009, when growth was 6 percent.
“Developing Asia’s recovery phase remains vulnerable to shocks,” the bank said in its Asian Development Outlook report. “Strong capital inflows could feed asset bubbles. Political discord surrounding fiscal debates in the United States, austerity fatigue in the euro area and border disputes in Asia could jeopardize macroeconomic stability.”
“Continued sluggishness in the United States, euro area and Japan suggests that developing Asia must continue to shift toward more domestic demand and trade with emerging markets,” the report added.
The bank forecast that China’s economy would expand 8.2 percent this year, up from 7.8 percent last year, thanks to strong domestic demand and improved export performance.
South Asia’s growth would turn around after two years of softening, it said, with India tipped to see GDP rise by 6 percent this year, compared with last year’s 5 percent.
“India has considerable potential, but its future performance relies on resolving contentious structural and policy issues that inhibit investment,” the bank said.
However, the stronger economic activity expected for this year would spur renewed price pressure, with inflation expected to rise from 3.7 percent last year to 4 percent this year, and 4.2 percent next year.
“These pressures remain manageable for now, but will need to be monitored closely, especially as strong capital inflows raise the specter of potential asset market bubbles,” the report said.
Southeast Asia would continue to shine on robust private consumption and increased intra-regional trade. Its GDP is set to expand 5.4 percent this year.
An ambitious plan by ASEAN to create a common, barrier-free market by 2015 would encourage even higher growth and help to diversify its market, the report said.
The bank also warned that Asia’s growth ambitions could be jeopardized unless the region secures enough supply of clean and affordable energy to support its rapid expansion.
Asia’s consumption in energy could rise from barely one-third in 2010 to more than half by 2035, when high-polluting coal consumption is set to rise by 81 percent.
The bank said the region could face “costly and devastating environmental impacts” unless radical changes to the way it uses energy is carried out.