ADB forecasts solid growth for Asia in 2011, 2012

Asia’s economic growth will ease to just under 8% for the next two years as the region continues a solid recovery, the Asian Development Bank said Wednesday, while warning that rising food prices threaten to send more people into poverty.

The Manila-based lender said the region’s economic recovery is still firm even though those growth rates are lower than the 9% expansion in 2010, when an exceptionally strong rebound from the global financial crisis took place.

The region in the bank’s annual economic report – 45 developing or newly industrialising Asian economies, excluding Japan – is forecast to grow 7.8% in 2011 and 7.7% in 2012.

“Developing Asia, having shown resilience throughout the global recession, is now consolidating its recovery and rapid expansion in the region’s two giants – the People’s Republic of China and India – will continue to lift regional and global growth,” ADB Chief Economist Changyong Rhee said.

However, the bank warned that inflation remains one of Asia’s biggest challenges, with prices forecast to rise 5.3% this year before tapering off to 4.6% in 2012.

Asia’s developing countries are home to two-thirds of the world’s poor – about 600 million people – who tend to spend more of their incomes on food and will be hit harder by rising food prices.

“This widens income inequality and could potentially lead to social tensions,” the report said.

A weak US economy, sovereign debt problems in countries that use the euro common currency and Japan’s recovery from the devastating March 11 earthquake and tsunami are other possible threats to growth, the ADB said.

Higher oil prices stemming from unrest in the Middle East could also undermine the region’s recovery, the bank said, while also noting that the leaking radiation crisis at a Japanese nuclear plant hit by the tsunami is raising concerns about nuclear generation as an energy source.

The ADB encouraged Asia’s emerging economies to forge so-called “South-South” links with other developing nations in the southern hemisphere to avoid relying on the wealthy industrialised West and Japan, whose economies remain weak after the 2008 global financial crisis.

In drawing up its forecast, the ADB assumes Japan’s economy will eke out modest growth of 1.5% this year and 1.8% in 2012.

Assuming Japan’s nuclear reactor crisis doesn’t deteriorate significantly, Rhee said the disaster’s long-term impact on growth would not be dire and may even nudge it higher as the country spends on reconstruction.

The impact on the rest of Asia would be mixed, as some countries benefit from higher exports of goods used in rebuilding, while others see less demand because of production disruptions.

East Asian economies including China, Hong Kong, Taiwan and South Korea will lead growth, expanding an overall 8.4% in 2011 and 8.1% in 2012.

The ADB said China’s economic expansion will continue to be driven by government investment in infrastructure and other fixed assets, although it will slow as stimulus spending falls and interest rates rise. Export growth will also slow as demand from major Western markets remains sluggish, the ADB said. China is forecast to grow 9.6% in 2011 and 9.2% in 2012, down from 10.3% last year.

India’s economy, which grew 8.6% in 2010, is forecast to expand 8.2% in 2011 before strengthening to 8.8% in 2012.

Southeast Asia, including Singapore, Thailand, Malaysia and the Philippines, will grow 5.5% in 2011 and 5.7% in 2012. Indonesia and Vietnam are expected to expand more than 6% for the two-year period

Tags: Asia economic growth