Tuesday, Manila-based Asian Development Bank cut its economic growth forecast for developing Asia to the level last seen during the 1997/1998 Asian financial crisis. The ADB urged developing Asia to rebalance its growth to endure the global crisis and laid down a set of policies to build robust demand and apply resources more efficiently.

According to ADB's annual economic publication, Asian Development Outlook 2009, economic growth in developing Asia is expected to ease to just 3.4% this year from 6.3% last year. The outlook for the region will improve to 6% next year, provided the global economy experiences a mild recovery.

In December, the ADB had lowered its growth forecast for Asia, excluding Japan to 5.8% in 2009 from 7.2% estimated in September, citing the impact of spreading global financial crisis to emerging markets.

Though the short term outlook for the region is bleak, the region is in a much better position to cope with this crisis than it was in 1997/98, the Manila based institution said today.

Huge foreign currency reserves and steadily slowing inflation would help policymakers to design tools to nurse their economies through the hard times ahead. However, the ADB warned that there remains significant downside risk to the global outlook, which could further impact the gloomy regional outlook.

The concern for the region, and especially for the region's poor, is that it is not yet clear that the U.S., European Union and Japan will recover as soon as next year, ADB Acting Chief Economist Jong-Wha Lee stated.

Economic growth in East Asia will ease to 3.6% this year, down from 6.6% in 2008 and a blistering 10.4% in 2007. Southeast Asia's growth is projected to dwindle to just 0.7% in 2009, down from 4.3% in 2008. The bank said three most export-oriented economies in the sub-region namely Malaysia, Singapore and Thailand will contract this year.

The bank estimates People's Republic of China, the region's growth engine, to expand 7% in 2009 on the back of massive fiscal stimulus measures adopted by the Government. However, this is much slower than the 9% growth recorded in 2008. Meanwhile, India's growth is expected to ease to 5% in 2009, following a 7.1% expansion seen in 2008. Intensifying crisis worsened business and consumer confidence and reduced capital inflows considerably.

Central Asia's growth is expected to decelerate in 2009 to 3.9% from 5.7% last year. Oil producing nations of the region are being hurt by falling oil prices, while smaller economies witnessed declining remittance inflows.

Further, the report laid down policies that would assist in building demand and use resources more efficiently. The ADB said governments should give priority to enhance the investment climate. Strengthening domestic spending needs policies that transfer more corporate savings to households and a more active fiscal policy can alleviate weak external demand in the short run and increase domestic demand.

Further, supply side policies can promote small and medium sized enterprises and service industries, thereby increasing the relative importance of production that caters to domestic demand.

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