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Asian Development Bank slashes Asia growth forecast

01 April 2009 08:00 (UTC +04:00)

Baku. Nijat Mustafayev â€“ APA-Economics. Developing Asiaâ€™s economic growth will slow in 2009 to its most sluggish pace since the 1997/1998 Asian financial crisis, the Asian Development Bank (ADB) said on Tuesday, urging the economies to "rebalance" growth to counter external shocks.
In its flagship annual economic publication, Asian Development Outlook 2009, the Manila-based bank said that economic growth in developing Asia will slide to just 3.4 percent this year, down from 6.3 percent last year and 9.5 percent in 2007. If the global economy experiences a mild recovery next year, the outlook for the region will improve to 6 percent in 2010, it added.
Deteriorating economic prospects will hinder the efforts to reduce poverty, ADB said. With the slow growth, more than 60 million people in 2009, and close to 100 million people in 2010, will remain trapped in poverty -- living on less than 1.25 U.S. dollars a day.
"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," ADB Acting Chief Economist Jong-Wha Lee said in a press release.
Despite the dismal outlook, ADB said that the region is in a much better position to cope with the ongoing global crisis than it was in 1997/98.
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, said the development bank.
Many Asian governments have already responded quickly to the crisis with appropriate financial, monetary and fiscal policies and so far the impact on financial stability has been limited, it added.
Meanwhile, ADB warned that there are significant downside risks to the global outlook, which could further impact on the already gloomy regional outlook.
The concern for the region, and especially for the regionâ€™s poor, is that it is not yet clear that the United States, European Union and Japan will recover as soon as next year, Lee said.
Economic growth in East Asia will slow to 3.6 percent in 2009, down from 6.6 percent in 2008 and a blistering 10.4 percent in 2007. While the Chinese mainland is expected to expand by 7 percent in 2009 on the back of massive fiscal stimulus measures rolled out by the government, three economies in the subregion -- South Korea, and Chinaâ€™s Hong Kong and Taiwan -- are likely to contract as their economies are hit hard by a sharp drop in demand for exports. ADB forecasts that in 2009 South Korea will record -3percent growth; Hong Kong, -2 percent growth; and Taiwan -4 percent.
Southeast Asiaâ€™s growth is projected to dwindle to 0.7 percent in 2009, down from 4.3 percent in 2008, and the three most export-orientated economies in the subregion -- Malaysia, Singapore and Thailand -- will also contract, with the most open of these economies, Singapore, likely to shrink by 5 percent.
South Asia, though not as open to trade as other regional economies, is also expected to lose steam. Indiaâ€™s growth slowed to 7.1 percent for 2008, well below the torrid 9 percent growth of recent years, and it is expected to fall further to 5 percent in 2009 as the intensifying crisis further dents business and consumer confidence and causes a major reduction in capital inflows.
Growth in Central Asia will drop to 5.7 percent in 2008, down from 12 percent in 2007, and is expected to decelerate further to 3.9 percent in 2009. Oil producing nations are being hurt by the fall in oil prices, while declining remittance flows pose a risk to the smaller countries in the subregion.
Economic expansion in the Pacific Islands is anticipated to slow to about 3 percent in 2009, largely as a result of the subregionâ€™s biggest economy, Papua New Guinea, slipping after two years of strong growth driven by the commodity boom.
ADB said that the regionâ€™s slowdown underlines the risks of excessive dependence on external demand, and developing Asia must adopt a mix of policies that will bolster demand and use resources more efficiently.
"Rebalancing growth is in developing Asiaâ€™s interest. 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," Lee said.
Export-led growth has delivered enormous benefits for the region, and will continue to do so in the coming years, ADB said. However, developing Asiaâ€™s large and persistent current account surplus is an integral part of the global imbalances that underlie the current global financial crisis.
ADB laid down a set of policies to build strong demand in the region, including transferring more corporate savings to households, reducing the precautionary motive for savings among households and enhancing the investment climate, among others.
"Undertaking the required reforms will facilitate developing Asiaâ€™s return to its high growth path, and help protect the region from future external shocks," Lee said.
The bank also said a concerted global effort is required to tackle global imbalances. Greater regional cooperation will help buffer the region against even large external shocks such as the current crisis, it added.