The Asian Development Bank (ADB) raised its regional growth outlook for this year yesterday but warned that recovery signs were not strong enough for Asian governments to remove the stimulus prop.
The Manila-based bank said that a huge dose of spending put Asia on course to lead the world out of its economic slump, updating its forecast for this year’s GDP to 3.9 percent growth from 3.4 percent in March. It also upgraded next year’s estimate to 6.4 percent from 6 percent.
“Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” ADB chief economist Lee Jong-wha said.
The region’s growth prospects were enhanced by “firm action by many governments and central banks, the relatively healthy state of financial systems prior to the global crisis” and a quick turnaround in “larger, less export-dependent economies,” the report said.
Lee said economic activity in the larger developing Asian economies had rebounded and output looked set for a so-called V-shaped comeback.
However, he cautioned central governments and banks against any hasty withdrawal of stimulus packages.
“This is not the timing for implementation of exit policy,” Lee told a press conference in Hong Kong.
He also warned against reliance on external demand as the global recovery “is still very slow.”
The economist said Asian economies should instead focus on domestic demand and encourage intra-regional trade by removing trade barriers and protectionist policies on the labor force.
The ADB said it boosted China’s GDP outlook by 1.2 percentage points to 8.2 percent this year thanks to huge pump-priming in the world’s third-biggest economy.
Beijing has targeted growth of 8 percent to keep unemployment at bay and avoid social unrest. The ADB has forecast 8.9 percent growth next year, up from 6.5 percent projected in March.
India was tipped by the ADB to grow 6 percent this year, up from a previous forecast of 5 percent. Next year the ADB estimates the South Asian giant will expand 7 percent, 0.5 percentage points up from March’s estimate.
South Korea was still predicted to contract, albeit at a slower pace due to government intervention.
But the heavily export-reliant economies of Hong Kong, Singapore and Taiwan were expected to shrink sharply this year as demand for their goods stays quiet and their markets only slowly regain strength.
TAIWAN
The report said Taiwan’s economy would contract more than expected this year, despite government fiscal stimulus measures targeted at both consumers and businesses and a reduction of the benchmark discount rate by 238 basis points to 1.25 percent from last September to February this year.
“The economic performance began improving in the second half of 2009, but in view of the steeper than expected first-half decline, the full-year outcome is expected to be a contraction of 4.9 percent, worse than was projected,” the report said.
The report expected Taiwan’s economy would return to positive growth next year, posting a growth rate of 2.4 percent, based on a pickup in global demand and supported by strengthening business links with China.
For Hong Kong, this year’s GDP is expected to contract by 4 percent, but modest growth of 3 percent is forecast for next year.
The ADB said despite a positive outlook for Indonesia and Vietnam, a deteriorating path ahead for Malaysia and Thailand had forced it to cut Southeast Asia’s outlook to 0.1 percent growth, from 0.7 percent in March.
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