Developing Asia braces for moderate growth: ADB
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Dimming global growth prospects and soft domestic demand in the region's two largest economies are slowing the pace of developing Asia's expansion, according to Asian Development Bank.
In the "Asian Development Outlook 2012 Update: Services and Asia's Future Growth", the bank said the growth is now expected to slide from 7.2 per cent in 2011 to 6.1 per cent in 2012, with a bounce back to 6.7 per cent in 2013.
Thailand's 2012 growth is revised down from 5.5 per cent to 5.2 per cent, due to lower-than-expected export growth forecast. The downward revision also followed the delayed spending under the Bt350 billion water management plan, whic is expected to be kicked off next year.
The update was released, following the annual April forecasts.
The possibility of a shock emanating from the unresolved euro area sovereign debt crisis or a sharp fiscal contraction in the United States pose the biggest downside risks to the economy. Fortunately, most developing Asian economies have room to counteract such shocks with fiscal and monetary policy. However, there is currently no regionwide need for countercyclical policy intervention.
In the medium term, continued weakness in external demand and moderated growth in China and India mean economies in the region must diversify their growth drivers. Service sector development is poised to play a critical role in the region’s future growth.
Key messages in the update are;
- Developing Asia’s growth is projected to expand by 6.1 per cent in 2012 and by 6.7 per cent in 2013, down significantly from 7.2 per cent in 2011;
- China is forecast to grow by 7.7 per cent this year and by 8.1 per cent in 2013, considerably more slowly than the robust 9.3 per cent growth of 2011;
- India will see GDP growth slow to 5.6 per cent in 2012 and bounce back to 6.7 per cent in 2013;
- Weakening growth momentum will temper price pressures, pushing inflation in the region down from 5.9 per cent in 2011 to 4.2 per cent in both 2012 and 2013;
- The ongoing sovereign debt crisis in the euro area and the looming fiscal cliff in the United States (US) pose major risks to the outlook;
- Developing Asia has no widespread, urgent need at the moment for countercyclical policy intervention;
- Countries will have to rely more on enhancing productivity and efficiency to secure future prosperity;
- Developing Asia’s service sector is to play a growing role as economies that graduated from agriculture to industry evolve further into service economies;
- A key challenge is to raise service sector dynamism by moving toward high-value modern services, such as information and communication technology, finance, and professional business services;
- A vibrant service sector would have broad economic benefits, including the creation of jobs for women in particular, thus supporting inclusive growth;
- Lack of human capital, inadequate infrastructure and restrictive regulations are major bottlenecks for developing a modern service sector.
