Growth in developing Asia will accelerate this year, thanks to a recovery in the mainland's economy and robust expansion in Southeast Asia, but governments should ward off capital inflows to avoid stoking inflation, the Asian Development Bank says.
Rising private consumption and stronger intraregional trade were expected to spur a pickup in growth in developing Asia this year and next, the bank said in its 2013 Asian Development Outlook, released yesterday.
It forecasts growth of 6.6 per cent this year and 6.7 per cent next year in Asia's 45 developing economies. The region's gross domestic product growth rate was 6.1 per cent last year.
"The rebound in China and solid momentum in Southeast Asia are lifting the region's pace after the softer performance last year," said Changyong Rhee, the chief economist at the Manila-based lender.
The bank expects the mainland's economy to expand 8.2 per cent this year after growth of 7.8 per cent last year, driven by strong domestic consumption and investment. Its forecast is 0.1 percentage point higher than the prediction it made in December. It forecasts 3.5 per cent GDP growth for Hong Kong this year and 3.8 per cent next year.
Among Southeast Asian nations, the bank expects Indonesia to lead the region, with 6.4 per cent growth this year and 6.6 per cent in 2014.
Its report said capital inflows to the region's 10 large economies - mainland China, Hong Kong, India, Indonesia, Japan, South Korea, the Philippines, Singapore, Taiwan and Thailand - climbed to an average 7.4 per cent of GDP in the three years to 2012. That was up from 1.7 per cent in the previous three years and near the average of 8.4 per cent before the global financial crisis.
The bank said governments should remain on guard against inflation and asset bubbles arising from such strong inflows.
The yuan strengthened to a 19-year-high against the US dollar last week, adding to signs that capital inflows stemming from quantitative easing in rich countries are flooding into emerging markets.
"Advanced economies will likely continue their accommodative monetary stance, and authorities in developing Asia must safeguard the soundness of the finance sector[s] to avoid the emergence of disruptive asset bubbles," the ADB report said.
The bank expects inflation in developing Asia to rise from 3.7 per cent last year to 4 per cent this year and 4.2 per cent next year.
The ADB's country director for China, Hamid Shariff, said downside risk on the mainland also came from excessive local government debt.
"Local governments are under growing pressure to embark on large infrastructure projects to foster growth and employment, especially in the second and third years of China's five-year plan," Shariff said.
"Moreover, over half of the debt contracted by local government financing vehicles under the stimulus in 2009-10 will mature this year. These factors could undermine debt sustainability for local governments and saddle banks with more bad loans."