ADB pulls back on growth forecast

PUBLISHED : Thursday, 12 April, 2012, 12:00am
UPDATED : Thursday, 12 April, 2012, 12:00am


The Asian Development Bank has lowered its economic growth forecasts again for China and the rest of Asia for this year and the next, and warned that if the euro-zone crisis worsened, the economies of China and Asia would deteriorate further.

The bank's latest forecast for China's gross domestic product growth is 8.5 per cent this year and 8.7 per cent next year, making China the fastest-growing economy in Asia even as it slows down from its 9.2 per cent growth last year. Its latest prediction for China's GDP growth of 8.5 per cent this year is down 0.3 percentage points from its forecast last December.

The Asian Development Bank's chief economist, Changyong Rhee, said: 'We believe China will be well above its growth rate of 7.5 per cent this year set by the government.'

Asia's GDP will grow 6.9 per cent this year and 7.3 per cent next year, after growing 7.2 per cent last year, the latest forecast by the Asian Development Bank (ADB) says. This is slower than ADB's forecast in December that Asia would grow 7.2 per cent in 2012. However, 'Asia's growth rate is still healthy compared to other parts of the world', Rhee said.

ADB forecasts that the United States will grow 2 per cent in 2012 and 2013, while the euro zone's economy will shrink 0.5 per cent this year and grow just 1 per cent next year, and Japan's will grow 1.9 per cent in 2012 and 1.5 per cent in 2013.

'The biggest threat at this moment is still uncertainty in the euro zone. We cannot rule out the possibility of further austerity measures in European countries. If that happens, it will spread to the US and Asia.'

If the euro-zone crisis gets worse, the US government might undertake further quantitative easing, which might spur inflation in China and Asia, Rhee said. Assuming the euro-zone crisis did not worsen, China would not need to resort to another financial and monetary stimulus policy as it did during the global financial crisis of 2008, Rhee said.

'Asia is facing a new challenge, rising inequality,' he said.

In the past two decades, China's Gini coefficient (where a higher number denotes greater inequality) rose from 32 to 43, while that of Asian developing nations grew from 39 to 46, according to ADB. Now the top 10 per cent of China's income earners spent 10 times more than the bottom 10 per cent, while the richest 1 per cent of Asian households accounted for 6 to 8 per cent of total income, Rhee said.

If inequality had not worsened in the past two decades, an additional 240 million people, mostly in China, would have been lifted out of poverty, Rhee said.

'Inequality can weaken growth by undermining social cohesion, worsening the quality of governance. If this trend continues, Asia may lose its strong point [of high growth with low inequality],' he said.

Meanwhile, Lombard Street Research, a British think tank, has a more bearish take on the Chinese economy. 'Our estimate of China's real GDP growth was already well below trend in the fourth quarter of last year, and the data for the first quarter implies the downturn got worse,' wrote Lombard Street director Diana Choyleva in a recent report.