The Asian Development Bank (ADB) yesterday slashed its growth forecast this year for Asia’s developing economies in light of plunging exports and warned that weak demand in the US and other markets could delay a recovery.
The bank cut its growth outlook for the region, which includes China, India, Taiwan, South Korea and Southeast Asia, to 3.4 percent from 5.6 percent. It said that while regional giants China and India should eke out modest growth, output in South Korea, Taiwan, Thailand, Malaysia and Singapore could shrink by up to 5 percent.
On the whole, Asia’s economic growth is expected to decelerate further this year before staging a mild recovery and rising 6 percent next year, Jong-Wha Lee, the Manila-based bank’s acting chief economist.
“The short-term outlook for the region is bleak as the full impact of the severe recession in industrialized economies is transmitted to emerging markets,” Lee said. “The concern for the region, and especially for the region’s poor, is that it is not yet clear that the US, European Union and Japan will recover as soon as next year.”
ADB’s downgrade was in line with the World Bank and private sector economists, who have cut Asian growth forecasts given sharp falls in exports and a slump in spending by Asia’s own consumers.
The downturn is Asia’s worst since the 1997 financial crisis and is being driven partly by the staggering collapse in Western demand for the electronics, cars and other exports that are critical to the region’s economic growth.
Lee said the region’s exporters would continue to struggle, but Asia’s governments were in a better position to respond to the global crisis thanks to their massive surpluses and had limited its impact by taking quick action.
“Large foreign currency reserves and steadily declining inflation rates will provide policymakers with the necessary tools to nurse their economies through the hard times ahead,” the ADB’s statement said.
China is trying to reduce reliance on exports with a 4 trillion yuan (US$586 billion) plan to pump money into the economy through public works spending. Singapore, Hong Kong, South Korea and other governments have announced similar stimulus measures.
Economies covered by the ADB report grew 6.3 percent last year and 9.5 percent in 2007.
The ADB said the slowdown highlights the dangers of Asia’s reliance on exports and said government must increase domestic demand and become more efficient. The region’s countries can do this by strengthening social safety nets that reduce the need to save.
Other measures include promoting smaller businesses and improving the local investment climate.
“This may be a crisis, but it is an opportunity to rebalance growth,” Lee said. “A more balanced approach can boost social welfare by using its savings more productively and help to reduce global imbalances that helped feed the current crisis.”
The Chinese economy is expected to rise 7 percent, down from 9 percent last year, while India’s growth is seen slowing to 5 percent from 7.1 percent last year, the bank said.
Taiwan is expected to shrink by 4 percent, while South Korea and Hong Kong are forecast to contract by 3 percent and 2 percent respectively, the bank said.
Southeast Asia is forecast to collectively grow just 0.7 percent this year, down from last year’s 4.3 percent, the bank said. But output in trade-driven Singapore will shrink by up to 5 percent, while that of Thailand and Malaysia should also contract.