Asia’s emerging economies will grow robustly into next year, led once again by China, although troubles in the US, Europe and Japan will clip their momentum, the Asian Development Bank said in an updated economic outlook released yesterday.
The resilience of the region, which has led the world since the 2008-2009 global financial crisis, means policymakers cannot relax in the fight against inflation even as global growth concerns overtake price pressures as the dominant economic risk.
That will keep investors edgy and capital flows in Asia volatile — both inflows on the region’s outperformance and the chance of a sudden withdrawal if risk appetite is pared, the ADB said in its Asian Development Outlook 2011 Update.
Despite global woes, growth will remain healthy across the region, the bank said. Developing Asia — made up of 45 countries in Central Asia, East Asia, South Asia, Southeast Asia and the Pacific — is expected to grow 7.5 percent this year and next. That is down from April forecasts of 7.8 and 7.7 percent respectively, and growth of 9 percent last year.
Changyong Rhee, the bank’s chief economist, said while the forecasts did not assume a “doomsday” scenario of a Greek default, such a development could trigger something akin to the 2008-2009 financial crisis, with the world’s ability to rebound much diminished from before.
“If it does happen this time, I don’t think there’s room for the US and Europe to bail out their banks again and [to engage] in fiscal expansion, so only the one side expansion of Asia. I believe is not enough to save the world,” Rhee said at a media conference in Hong Kong.
For now, though, Asia’s robust fundamentals including sound budgets and high reserves would offer a buffer, but there was no room for complacency, the Manila-based ADB warned.
The tentative recovery in major industrial economies had been undermined by the ratings downgrade of the US, Europe’s debt problems and Japan’s triple disaster in March, ADB president Haruhiko Kuroda said, but added the region’s economies were still growing led by India and China.
The ADB said China is expected to grow 9.3 percent this year and 9.1 percent next year, compared with its April forecasts of 9.6 and 9.2 respectively.
India is now likely to grow 7.9 percent and 8.3 percent — lower than forecasts made in April of 8.2 percent for this year and 8.8 percent for next year.
In parts of Asia, inflation concerns have eased as commodity prices have come off their peaks this year while worries about the global economy have grown.
However, the bank said the prices could spurt higher again and further policy tightening may be needed.
Inflation across the region was forecast at 5.8 percent this year, compared with the April projection of 5.3 percent, while the outlook for next year was unchanged at 4.6 percent.
“If commodity prices resume their climb and the current weakness in the global recovery turns out to be temporary, regional central banks will have to speed up the process of monetary tightening, especially where inflation is already high,” the bank said.
The bank said allowing some exchange rate appreciation could help contain inflation by lowering import prices, and that could be combined with temporary capital controls designed to curb unwanted hot money flows which have been preventing some policymakers from raising rates in the inflation fight.
“With real interest rates having turned negative in several countries, more monetary tightening is necessary to control inflation both over the next 2 years and the medium term, when the global economy will regain momentum,” the ADB said.
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