By Nick Mann | 3 October 2012
Slower economic growth in China and India has prompted the Asian Development Bank to lower its forecast for 45 Asian countries.
In an update published earlier today, the ADB said it now expected the 45 economies to expand by 6.1% this year and by 6.7% in 2013. This compares with its April forecast of 6.9% for 2012 and 7.3% for 2013, and with the 7.2% growth recorded last year.
The Bank attributed this to a ‘more tenacious’ slowdown in global growth than previously forecast and, in particular, ‘unrelenting weakness’ in the region’s main export markets – the eurozone, Japan and the US. It also noted ‘diminished prospects’ for performance to recover in the near term.
Growth momentum in India is expected to slow from 6.5% last year to 5.7% in 2013, before bouncing back to 6.7% in 2013. China’s economy is expected to expand by 7.7% this year and by 8.1% in 2013, compared with 9.3% last year.
Both countries experienced significant decline in their export growth in the first half of 2012. China’s fell from 24% in the first half of 2011 to 9.2% in the first six months of this year, while India’s exports contracted by 6.7% in the first five months of this financial year.
The Bank noted, however, that internal factors had also weakened both countries’ growth prospects, in particular in India, where investment and consumption had both fallen.
Together, the ongoing eurozone sovereign debt crisis and the looming ‘fiscal cliff’ in the US pose ‘major risks’ to the outlook for developing Asia.
‘Intensified financial market stress in Europe may deepen the recession, with disastrous spillovers to the rest of the world,’ the ADB said. ‘Further, failure in the US to extend important fiscal policy measures into 2013 would further erode private demand.’
Developing Asia’s most open economies would be worst hit by the change, it noted.
Most economies in the region had ‘ample room’ to use monetary and fiscal policy tools if needed, the Bank said, but countries with large fiscal deficits or high and persistent inflation should implement fiscal consolidation.
Countries were also urged to improve the productivity and efficiency of their economies and develop a ‘vibrant’ service sector.
Changyong Rhee, the ADB’s chief economist, said: ‘Developing Asia must adapt to a moderate growth environment, and countries will need to do more to reduce their reliance on exports, rebalance their sources of growth, and increase their productivity and efficiency. These measures are critical if the region is to continue lifting its people out of poverty.’
