Manila: Growth across Asia and the Pacific will be the fastest this year since 2007 as the region recovers strongly from the global crisis, but will moderate in 2011, the Asian Development Bank said on Tuesday.
Developing Asia, a diverse group of 45 economies including China, India, Tajikistan, Samoa, and Indonesia, would grow 8.2% in 2010 and 7.3% in 2011, the ADB said in its update of its 2010 Asian Development Outlook.
The 2010 growth forecast has been revised up from 7.5% in April and a forecast of 6.4% a year ago; the 2011 forecast is unchanged from April.
“The return of investors’ risk appetite for emerging market assets and the strong economic recovery have combined to bring a surge in capital flows to developing Asia,” the ADB said.
Those flows - both portfolio and direct investment - reflected strong fundamentals and confidence in long-term reforms and growth potential, but also carried risks such as potentially destabilising markets and complicating policy setting.
”The prospect of reversal of inflows remains a possibility in the medium term as monetary tightening in the US and the eurozone narrow the interest rate differentials with developing Asia,” the bank said.
“Asian authorities should therefore consider appropriate policy measures to manage a surge in capital inflows and to encourage stable long-term capital flows.”
The ADB said Asia would also benefit from greater coordination to overcome fears of losing export competitiveness through unilateral currency strength.
“While price stability must remain the overriding objective of monetary policy, the global crisis highlights the need to prevent asset price bubbles through improved coordination between financial regulation and monetary policy to the region.”
The ADB maintained a forecast of 9.6% growth in China this year, supported by exports and domestic demand, and expected it to ease slightly to 9.1% in 2011.
Indian growth was expected to pick up slightly to 8.7% in 2011 from 8.5% this year, driven by domestic demand, company profits and favourable financing conditions.
Forecast growth for the 10 economies of Southeast Asia has been revised up to 7.4% in 2010 -- the fastest since 1996, before the Asian Financial Crisis -- from 5.1%.
“The world economy is experiencing considerable uncertainty, though, and there are signs that economic activity across Southeast Asia is starting to decelerate,” the ADB said, forecasting regional growth in 2011 at 5.4%.
Central Asian economies were benefitting from buoyant oil and metal prices, and remittance inflows, but the ADB said there were exceptions to the regional improvement.
“Country-specific circumstances, such as devastating floods in Pakistan, the ongoing political impasse in Nepal, and political unrest in the Kyrgyz Republic will weigh on future growth,” the bank said.