Asian Development Bank upgrades 2010 growth forecast for developing Asian economies

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July 20, 2010 2:14 PM EDT

The Asian Development Bank (ADB) upgraded its aggregate 2010 growth forecast for Developing Asian economies to 7.9 percent from 7.5 percent, citing a robust first quarter performance driven by buoyant exports, strong private demand, and sustained stimulus policy effects.

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“The stronger-than-anticipated export rebound and much-improved consumer confidence have helped the region’s economies recover faster than we expected,” said Jong-Wha Lee, ADB’s chief economist. “We are seeing the newly industrialized and Southeast Asian economies leading the way.”

The strengthening economic recover witnesses in Asia, ADB asserts, means it is time to unwind monetary and fiscal policy stimulus across the region.

“While most emerging East Asian economies are assured of a sharp V-shaped recovery this year, it is too early to say that the ‘V’ stands for victory,” said Srinivasa Madhur, senior director of ADB’s office of regional economic integration.
“Ensuring the sustainability of the recovery depends heavily on the correct timing, policy mix, and pace at which economic stimulus is withdrawn. The private sector must be strong enough to take over.”

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“Developing Asia,” as defined by the ADM, comprises 45 member countries from Central Asia, East Asia, South Asia, Southeast Asia and the Pacific.

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Risks to growth in the area, ADB warns, would stem from an uncertain global environment, unpredictable private domestic demand, and the risks of dramatic capital flows and exchange rate fluctuations. Consequently, ADB maintained its 2011 growth outlook unchanged at 7.3 percent.

For a more concentrated group, “East Asia” – defined as comprising the People’s Republic of China (PRC), Hong Kong, China, Republic of Korea, and Taipei, China – is now expected to expand by 8.4% this year, slightly higher than the 8.3% predicted earlier this year.

“Higher investment has helped the latter three economies, as production and consumer spending have started picking up and exports are recovering strongly,” ADM explained.

ADB maintained its 9.6 percent GDP growth rate for PRC in 2010, and a slowdown to 9.1 percent in 2011.
”Recent measures to slow credit growth and cool speculation in the property market will likely lead to slower investment in the coming quarters,” the Bank stated.
“Industrial output and the purchasing managers’ indexes also suggest a soft landing for the Chinese economy.”

ADB sharply upgraded its growth forecast for Southeast Asia to 6.7 percent from 5.1 percent, noting that first-quarter growth in the five bigger economies in this region – Indonesia, Malaysia, Philippines, Singapore and Thailand -- exceeded expectations on account of strong exports, robust industrial production, and improved consumer confidence.”

For South Asia, ADB forecasts aggregate 2010 growth of 7.5 percent, slightly higher than the April projection of 7.4 percent. The anticipated growth rate for the subgroup's dominant economy, India, is unchanged at 8.2 percent.

In Korea, Malaysia, Singapore, Taipei,China, and Thailand tightening has already begun, and should continue at what appears to be an appropriate pace, ADB indicated.

In Indonesia, Philippines, and Viet Nam, unwinding policy stimulus may need to start soon, ADB added.

“It’s critical for each country to withdraw the stimulus at an appropriate pace but greater regional coordination, especially on exchange rates, could spur regional demand and help global economic rebalancing,” said Madhur.

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