Asia to Lead World Recovery

Asia is set to lead the world out of the global financial crisis in spite of the slow recovery in the US and Europe, according to the latest forecasts by the Asian Development Bank. In a dramatic contrast to its view in March, when it slashed 2009 growth forecasts for Asia, excluding Japan, from 7.2 per cent to 3.4 per cent, the ADB on Tuesday said the region would grow more strongly than expected both in Y 2009 and in Y 2010. “Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” said Jong-Wha Lee, the ADB’s chief economist. The bank said in a major new report that developing Asia would grow by 3.9% in 2009, with the projection for next year increased to 6.4% from 6%. Mr Lee said that governments should not take the improved outlook for granted, warning that a sustained improvement would require a recovery in western economies and continued fiscal and monetary stimulus in Asia.

“The improved regional outlook should not make Asian economies complacent. A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region’s ongoing recovery,” he said. The bank also called for structural changes to increase domestic consumption, improve labor mobility and reduce the region’s over-reliance on exports to the west. The report says that China is likely to record growth of 8.2% this year, with a surge in bank lending and fixed asset investment pushing growth 1.2% age points higher than its forecast in March.

It says the recovery will be sustained next year, with China’s growth rate rising to 8.9 per cent so long as there is a moderate recovery in the international economy and a continuation of the fiscal stimulus introduced by Beijing this year. The report says that Chinese growth accelerated to 7.9 per cent in Q-2 Y 2009 from 6.1% in the first quarter. Most of the improvement was driven by investment, which contributed 6.2 % points of overall first half growth of 7.1%. For East Asia as a whole, the ADB upgraded its forecast to 4.4% from 3.6% in March, mainly because of the strength of the Chinese recovery. It forecasts a shallower contraction than previously expected in South Korea, but a sharper than forecast slowdown in Hong Kong and Taiwan.