ADB cuts Asia growth outlook on demand worries

14 September 2011 05:01  [Source: ICIS news]

SINGAPORE (ICIS)--The Asian Development Bank (ADB) said on Wednesday it has trimmed its 2011 and 2012 economic growth forecasts for most countries within the Asia-Pacific, amid ongoing worries about weak external demand from key trading partners.

The slowdown in demand from US and Europe continues to weigh over the region, with export growth easing substantially in the April-June quarter of 2011 in leading economies including China, the ADB said in its Asian Development Outlook Update report.

However, growth across the region is expected to remain healthy, with economies in Developing Asia – made up of 45 nations in east Asia, central Asia, south Asia, southeast Asia and the Pacific – expected to grow by 7.5% this year and in 2012, the ADB said.

“Strong domestic consumption and expanding intra-regional trade are helping to underpin still solid growth levels,” said Changyong Rhee, ADB’s chief economist.

“Since the onset of the global recovery, the growth in exports to China from several Asian economies has been stronger than their exports to the rest of the world,” Rhee added.

The share of intra-regional exports among the largest economies in the region increased from 42% in 2007 to 47% in the first half of this year, according to the ADB.

Accelerating inflation levels remain a threat to many Asian economies, with the inflation rate in Developing Asia expected to average at 5.8% this year, up from the previous projection of 5.3% made in April, ADB said.

“The rate should cool in 2012 to 4.6% as commodity prices recede but central banks will still need to keep a close watch and may need to take remedial action,” the ADB said.

“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,” it added.

Many economies in the region are well placed to cope with the weaker global economic conditions, provided that the major industrial economies do not regress into recession, ADB said.

“Ample fiscal space, even after the recent spate of fiscal stimulus measures, and large foreign reserves provide a buffer against further downside risks,” Rhee added.

In the longer term, the region must adopt structural reforms that encourage domestic growth, as demand from advanced economies is likely to remain subdued, the ADB said.

East Asia remains the key economic driver for the region, with an expected growth of 8.1% this year, while south Asia is expected to expand by 7.2%, according to the ADB.

China’s economy is expected to grow by 9.3% in 2011 and 9.1% next year, compared with the earlier forecasts of 9.6% and 9.2% respectively, it said.

Growth in south Asia is also slowing this year as monetary authorities move to combat high levels of inflation, according to the ADB.

India’s economy is expected to grow by 7.9% this year and 8.3% in 2012 – lower than the previous estimates of 8.2% and 8.8% respectively, it added.

By: Nurluqman Suratman

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