Developing Asia's Recovery Gains Further Momentum - ADB

HONG KONG, CHINA - Developing Asia's robust recovery from the global crisis is gaining further momentum, the Asian Development Bank (ADB) says in its annual flagship economic publication Asian Development Outlook 2010 Update, released today.

The report forecasts healthy growth of 8.2% in 2010, well above 5.4% recorded in 2009 and also above ADB’s earlier forecast of 7.5% in ADO 2010, released in April. Strong export recovery, robust private demand, and the sustained effects of stimulus policies allowed the region to experience solid growth in the first half of 2010. This improved performance is broad-based and is projected to carry on for the rest of the year.

The region’s two giants continue to perform strongly, lifting up the growth of the entire region. ADB’s 2010 forecast for the People’s Republic of China (PRC), where double-digit growth in the first half of 2010 is expected to moderate somewhat in the second half, remains elevated at 9.6%. ADB’s 2010 forecast for India is slightly upgraded to 8.5% from 8.2% in April.

“Developing Asia’s recovery has led the world. The speed and strength of the region's rebound continues to surprise on the upside, allowing ADB to upgrade its 2010 growth forecasts for each of the sub-regions. The V-shaped recovery has laid the foundation for sustained growth beyond the short term,” says ADB Chief Economist Jong-Wha Lee.

Despite the region’s vigorous rebound, inflationary pressures remain manageable. In fact, inflation is forecast to be generally within the central banks’ comfort zones, at 4.1% for 2010 and 3.9% for 2011.

The one big cloud hanging over the region’s otherwise sunny short-term horizon is the continued fragility and uncertainty of recovery in the industrialized countries. While these countries have performed better than expected in the first quarter, their growth momentum slowed down noticeably in the second quarter. The threat of another contraction in industrialized countries still remains, although the likelihood is small.

This risk from the industrialized countries is a major reason why ADB is maintaining its 2011 growth forecast at 7.3%, which marks a moderation from the 8.2% of 2010. Additional factors for the moderation are the gradual withdrawal of the fiscal and monetary stimulus, and the end of the low-base effect due to the slump. It remains to be seen whether private domestic demand will be strong enough to support growth as fiscal and monetary policy is normalized.

At a broader level, as developing Asia’s recovery progresses, policymakers must turn their focus from managing short-term output fluctuations to ensuring strong medium- and long-term growth. Sustaining growth will require policies that expand the region’s productive capacity through both factor accumulation and factor productivity.

“The region needs to reset its economic priorities. Government policies must be tailored to focus on trade, human capital, infrastructure, and financial development to build the foundation for developing Asia’s next transformation—one toward sustained economic growth,” says Dr. Lee.

Aggregate growth in East Asia is now projected to rise to 8.6% in 2010, largely owing to stronger than expected recoveries in the highly open economies of Hong Kong, China; the Republic of Korea; and Taipei,China. The three economies have bounced back in tandem with the recovery of global trade. The sub-region’s solid performance is underpinned by the exceptional robustness and resilience of the PRC’s economy.

Southeast Asia’s bigger economies – Indonesia, Malaysia, Philippines, Singapore, and Thailand – have rebounded from last year’s weakness at a much stronger pace than was foreseen in April. The growth spurt was sparked by a sharp upturn in exports, which fueled recoveries in consumption and private investment. Aggregate growth for the 10 sub-regional economies this year is now forecast at 7.4%.

South Asia’s growth forecast has been lifted to 7.8% from April’s forecast of 7.4%, mainly owing to stronger domestic demand conditions as consumer and business confidence is on the rise. India is experiencing a surge in economic activity, prompting the central bank to tighten its monetary stance in a series of policy adjustments since January to forestall overheating. While most economies of the sub-region are expanding faster than earlier expected, the devastating floods in Pakistan will negatively impact on every sector of the economy. ADB forecasts growth for Pakistan to fall to 2.5% in FY 2011, down from 4.1% in FY2010.

Growth across Central Asia has revived because of higher oil prices and economic recovery in the Russian Federation, the region’s major trade and financial partner. Macroeconomic policies and reform efforts have generally been both effective and sustained. Sub-regional growth forecast for 2010 is now nudged up to 5.1% from the April forecast of 4.7%.

Pacific aggregate growth projection has been revised up from 3.7% in April to 4.3% owing to upgrades for Solomon Islands and the Democratic Republic of Timor-Leste. However, the better performances by these resource-driven economies mask low growth in much of the region.

Asian Development Outlook and Asian Development Outlook Update are ADB’s flagship economic reports analyzing the economic conditions and prospects in Asia and the Pacific, and are issued in April and September, respectively.