The Asian Development Bank cut most of its 2012 and 2013 growth estimates for developing Asia on Wednesday as a slump in global demand weighs on the region’s powerhouses China and India and on its export-dependent economies.
The Manila-based bank said the region should diversify its growth drivers and capitalise on its booming service industries, as seen in India and the Philippines, to sustain domestic growth amid prolonged weakness in external demand.
The euro zone’s unresolved sovereign debt crisis and the United States’ looming fiscal cliff were the biggest risks to the growth outlook, with Asia’s most open economies particularly vulnerable to spillover effects, the ADB warned in an update of its regional outlook.
The risk of rapid reversals in capital flows to developing Asia also remained a concern, although the region’s capital markets have not shown excessive volatility, it added.
Still, most countries in the region have enough room to use monetary and fiscal policy tools if necessary to protect domestic growth, with inflation expected to be slower than earlier anticipated this year and the next, the ADB said.
The region must brace itself for a prolonged period of moderate expansion after years of rapid growth, the bank said.
Developing Asia - comprising 45 countries in Central, East, South, and Southeast Asia and the Pacific - is now forecast to grow 6.1 per cent this year and 6.7 per cent in 2013.
The figures are substantially slower than April estimates of 6.9 per cent and 7.3 per cent respectively, and last year’s 7.2 per cent expansion.
China, which is also struggling with slower investment and demand at home, is expected to grow 7.7 per cent this year and 8.1 per cent next year, below the forecasts made in April of 8.5 per cent and 8.7 per cent, respectively, the ADB said.
Growth in India is expected to hit 5.6 per cent and 6.7 per cent in 2012 and 2013, weaker than previous forecasts of 7.0 per cent and 7.5 per cent, respectively, as it battles persistently high inflation, a large fiscal deficit and weaker consumption.
East Asia will remain the region’s fastest-growing area, although it will not be immune to the overall deceleration in the region, the ADB said.
The bank kept its 2012 growth forecast of 5.2 per cent for Southeast Asia, lifted in part by recovery efforts in Thailand from last year’s flooding, and higher state spending in Malaysia and the Philippines.
The development lender said the region’s policymakers must find ways to support domestic growth as soft global demand keeps pressure on exports.
It said policies such as education reform, improved infrastructure and easier regulation geared towards boosting the services sector - now contributing nearly half of the region’s GDP and employing 34 per cent of developing Asia’s workers in 2009 - would help lift productivity and promote inclusive growth.