Asian recovery looks to be on track: ADB

Source : Business Times – 24 Jul 2009

S’pore growth for 2010 forecast at 3.5%, and the rest of Asean 4.2%

ASIAN economies appear to have turned the corner from the global recession and should be able to double next year the anaemic growth rates they are expected to post in 2009, the Asian Development Bank (ADB) said yesterday. But it warns in its latest Asia Economic Monitor that the road to full recovery is strewn with hazards.

The biggest single threat to continuing recovery identified by ADB report is the danger that recession in the US and Europe, on which Asia relies heavily for export markets, will last longer then generally expected.

Singapore’s GDP growth rate is forecast by the report to reach 3.5 per cent in 2010, after an expected overall contraction of 5 per cent this year. The rest of Asean should recover from marginal growth of 0.7 per cent this year to 4.2 per cent expansion in 2010, ADB says.

China remains the region’s star performer, with growth expected to be maintained at a relatively high 7 per cent this year, rising to 8 per cent in 2010. Japan, on the other hand, is forecast to suffer a 5.8 per cent GDP contraction this year and recover to just 1.1 per cent growth in 2010.

South Korea and Hong Kong are forecast to recover to respective growth rates of 4 and 3 per cent in 2010 after sharp contractions this year, but Taiwan will remain one of the laggards of the region with growth recovering only to 2.4 per cent next year.

Recovery got under way in Asia during the second quarter of this year, the ADB report notes, fed largely by fiscal and monetary stimulus programmes. But while exports are showing some recovery as a result of inventory adjustment, underlying external demand remains weak.

Among the positive signs for Asia are ‘early indicators that the pace (of economic contraction) slowed in the second quarter of 2009′, while balance of payments positions have ‘turned positive’ again, stock markets have rebounded, several currencies have begun appreciating and inflation has eased.

Meanwhile, the region’s banking systems ‘appear capable of weathering the economic storm’, ADB says, ‘with prudential indicators strong and lending continuing to grow’ across much of the region.

Despite these positive indications, the report says: ‘The overall external environment for emerging East Asia remains difficult and uncertain, with the recession in advanced economies continuing and global financial conditions improving (but) still tight.’

Emerging East Asia – which excludes Japan and the newly-industrialised economies (NIEs) of South Korea, Taiwan, Hong Kong and Singapore – ‘could see a V-shaped recovery’, with growth dipping sharply in 2009 before recovering next year to its pace in 2008.

But this scenario could change for the worse if there is a more prolonged recession than forecast in advanced economies, with export demand remaining depressed longer than expected. Premature fiscal or monetary tightening could also damage the prospects for a V-shaped economic recovery in Asia.

And falling inflation could turn into deflation in some economies of the region, says ADB, noting that Singapore and Taiwan, whose economies have contracted most sharply among the NIEs in the current recession, have been ‘experiencing deflation over the past few months’.

Given the tentative nature of the expected recovery, ‘it is critical that authorities stay the course in supporting domestic demand and growth’ through fiscal and monetary stimuli, the ADB report adds.