The Asian Development Bank (ADB) yesterday upgraded its growth forecast for this year for 14 East Asian economies and urged governments to unwind stimulus measures launched during the global recession.
The bank upgraded its average growth forecast for Southeast Asia, Greater China and South Korea to 8.1 percent, up from April’s projection of 7.7 percent, following a spate of stellar growth data from the economies.
“While most emerging East Asian economies are assured of a sharp V-shaped recovery this year, it is to early to say that the ‘V’ stands for victory,” said Srinivasa Madhur, an ADB senior director who presented the findings.
The recovery’s sustainability would depend on “the correct timing, policy mix and pace at which economic stimulus is withdrawn,” he said, adding: “The private sector must be strong enough to take over.”
“In East Asia, the newly industrialized economies of Hong Kong, China; Republic of Korea; and Taipei, China [sic] are expected to post stronger growth due to impressive first quarter performances,” the ADB said in a report.
China is expected to post 9.6 percent growth this year and 9.1 percent next year, when measures to prevent overheating kick in.
The 14 economies surveyed included ASEAN, China, Hong Kong, South Korea and Taiwan.
Citing Singapore, which has upped its GDP growth forecast for this year to 13 percent to 15 percent, Madhur said figures for the other economies have had to be adjusted upwards as well due to the strength of the regional rebound.
A pick-up in world trade and speedy responses from governments to tackle the global recession ensured that their economies were able to recover swiftly and weather shocks, Madhur said.
“Despite uncertainties emanating from the European debt crisis, the emerging East Asia’s sharp V-shaped recovery from last year is very much on track and we see fairly broad-based strong growth across the region,” he said.
The ADB forecast for next year remained unchanged at 7.2 percent as the bank expects growth to taper as advanced economies like the US slow down as they pull back their stimulus measures.
Madhur said given the region’s economic strength, countries should follow the US lead in withdrawing stimulus measures meant to prop their economies up during the recession, but must time it properly.
“We need to sustain the recovery and at the same time exit from the unprecedented policy stimulus in the region,” he said.
Meanwhile, the bank said China should boost interest rates or allow its currency to strengthen to help curb inflation pressures.
“Over the next 12 to 18 months, interest rates may need to rise significantly depending on how exchange rate policy is handled,” the bank said in the report.
The ADB said Beijing’s pledge last month of a more flexible exchange rate policy suggests the yuan may appreciate, which would help temper inflation pressures. China should speed up the process of returning economic policies to more normal settings to “avoid excess inflation or a hard landing,” it said.
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