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Developing Asia is poised to lead the recovery from the global slowdown and economies in the region are proving to be more resilient to the downturn than initially estimated, the Asian Development Bank said Tuesday.
The latest update to the bank's Asian Development Outlook 2009 forecasts developing Asia, which excludes Japan, to expand 3.9% this year, more than the 3.4% estimated in March. Likewise, the growth forecast for next year was upwardly revised to 6.4% from 6%.
Firm measures adopted by many governments and central banks, healthy financial systems before the global crisis and rapid turnaround in the larger and less export-dependent nations underpinned the growth prospects of the region, the Manila-based bank said. Tax cuts, greater public spending, targeted assistance, and easy monetary policies boosted consumption and investment.
The ADB said any slippage in the major industrial economies' recovery would delay the region's return to its long-term growth path. The regional economy is now poised to achieve a V-shaped rebound, according to the lender.
The report said notable divergences exist in the outlook across sub-regions and across economies. Economic growth in East Asia for 2009 was upgraded to 4.4% from 3.6%.
Driven by aggressive monetary easing and huge fiscal stimulus rolled out by the government, the People's Republic of China's economic growth is now projected at 8.2% for this year, up from the March's estimate of 7%. For the next year, the bank sees 8.9% growth, larger than the 8% projected in March. By contrast, the economies of Hong Kong and Taiwan are likely to shrink more sharply on account of the severe decrease in foreign demand.
Further, the bank said the South Korean economy is forecast to shrink 2% this year, better than the 3% decline expected earlier.
Growth prospects for South Asia improved to 5.6%, the ADB said, better than the 4.8% estimated in March as the outlook for five of the eight sub-regional economies were upgraded. The bank lifted India's growth forecast to 6% this year from 5% on emerging signs of recovery in business confidence and large fiscal stimulus. Meanwhile, bleaker prospects are projected for other regions of South Asia like Maldives, Pakistan and Sri Lanka.
As more positive outlook for Indonesia and Vietnam failed to offset the deteriorating prospects for more open economies like Malaysia and Thailand, the bank lowered the GDP growth estimate for Southeast Asia to 0.1% for 2009 from 0.7%. Also, projections for Central Asia are bleaker due to lower commodity prices, a deeper downturn in the Russian Federation and weaker capital inflows, investments and remittances. Growth is expected to ease to 0.5% this year versus 3.9% estimated in March. Economic expansion in the Pacific Islands was also slightly lowered to 2.8% this year compared with 3% in the prior forecast, reflecting falling incomes from remittances and tourism.
ADB Chief Economist Jong-Wha Lee assessed that a protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region's ongoing recovery. To promote more resilience, developing Asia need to broaden the scope and structure of its openness. In order to reduce the vulnerability to external shocks, policy makers should tackle the geographically unbalanced structure of its trade, capital flows and movement of labor.
Inflation in developing Asia is forecast to come in at just 1.5% in 2009, down from 2.4% projected in March. However, citing possibility of a strong growth, the bank raised the inflation forecast to 3.4% for 2010. Therefore, the central banks in the region would keep a tight watch on monetary policies so as not to encourage asset bubbles that would inflate prices to levels that are no longer justified by fundamentals.
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