Manila: Growth in Asia’s developing economies will slow this year to the lowest rate since the 1997-98 financial crisis, but the world’s fastest expanding region may rebound next year, the Asian Development Bank said.
The forecast for 2010 was however contingent on a mild recovery in the global economy, and this was far from certain, the Manila-based ADB said in its annual Asian Development Outlook released on Tuesday.
“There are tremendous downside risks to this global outlook,” ADB president Haruhiko Kuroda said in the report.
“The effectiveness of the global responses to the crisis remains uncertain. Loud calls for protectionist policies are becoming worrisome. As job losses in the major industrialised countries continue, the protectionist voices may only get louder.”
The ADB said Asia’s developing economies, which include China, India, the economies of Southeast Asia, South Korea and Central Asia, should register average GDP growth of 3.4% this year, down from 6.3% in 2008.
It is the lowest ADB forecast for developing Asia since growth averaged only 0.2% in 1998.
The multilateral development bank said average growth in Asia could recover to 6.0% in 2010 if big industrialised nations pull out of recession.
The forecasts by and large confirm a Reuters poll of economists earlier this month that growth in Asia will fall sharply this year and could recover next year.
“The concern for the region, and especially for the region’s poor, is that it is not yet clear that the United States, European Union and Japan will recover as soon as next year,” said the ADB’s acting chief economist Jong-Wha Lee.
As late as December, the ADB had forecast that average growth in Asia would reach 5.8% in 2009. But it said: ”The global downturn is having a pronounced impact on the region’s exports and subdued domestic demand will further crimp growth.”
China, the world’s fastest growing economy, will register growth of 7.0% this year, down from 9.0% in 2008, the ADB said. India should grow 5.0% in 2009 and 6.5% in 2010, it said.
The economies of Hong Kong, South Korea, Taiwan and Singapore will all contract this year because of their dependence on trade to support growth, it said.
The main effect of the slower growth will be a setback in poverty alleviation. In 2009 alone, the ADB said, the number of poor will be 62.3 million higher at 728.2 million because of the slowdown.
If growth had continued as in 2007 and 2008, the number of poor in developing Asia would have been 665.9 million, based on a daily allowance of $1.25.
This crisis has highlighted the need for developing nations in Asia to rebalance growth and avoid over-reliance on export-driven expansion, the ADB added.
“The pronounced impact of the current global downturn on developing Asia’s growth underlines the risk of excessive dependence on external demand,” it said.
“A wide range of government policies, ranging from boosting domestic consumption to promoting more competitive markets, will be required to facilitate the transition of the region to a more balanced growth path.”