Washington: Asia may be leading the world’s recovery from recession but its growth prospects are still clouded by the fragile global economic situation, the Asian Development Bank’s top economist said.
The bank has projected “very optimistic” regional growth rates in 2010 but they could be dampened by a weak global recovery, especially in industrialized nations, and premature government strategies to exit from recession, chief economist Lee Jong-Wha said at a Wednesday forum in Washington.
“The question is whether recovery will be sustained in 2010 and beyond,” he said. “The outlook still remains uncertain, especially the downside risks which may come from a protracted global slowdown and which will delay the region’s full recovery.”
The Manila-based ADB had recently forecast that developing Asian economies, led by China and India, will grow by an average 6.4% in 2010 from about 3.9% this year.
“So, even though we are now leading the recovery, there is no room for complacency because global recovery seems to be in the near term very weak,” said Lee, a Harvard-educated South Korean who is chief spokesperson for ADB on economic forecasts and trends.
While Asia had proved to be more resilient than other regions in confronting the worst global downturn in decades, its fortunes remain tied to the key export markets of the industrial world, Lee said.
“Asia’s increased export-orientation raises its vulnerability to external shocks. Although there have been lot of discussions about recovery, in reality the Asian countries have not decoupled from the industrial countries.
“So Asia cannot be the sole driver of its own growth and we still rely on external demand,” he added at the forum organized by the Peterson Institute for International Economics.
Peterson economist Michael Mussa said he did not expect most of the world to be mired in recession or in extremely sluggish growth, including the United States where most data point to economic growth in the third quarter after nearly two years in recession.
On Wednesday, the Dow Jones Industrial Average gave hope that the US was weathering the recession, trading above the key emotional threshold of 10,000 for the first time in a year with a strong rally led by better-than expected profits from top firms including Intel Corp. and JPMorgan Chase.
The rally inspired gains in nearly all key Asian markets on Thursday.
“The ‘V’ shaped recovery is alive and well in emerging Asia,” said former International Monetary Fund chief economist Mussa, predicting a strong upturn in regional growth.
Top growth driver China snapped back from close to zero growth at the end of 2008 to already about 8% growth in first quarter this year while at least half a dozen other economies in the region posted growth rates of between 10 and 20%, Mussa noted.
“My worry, of course, is that the initial bounce back from an extremely sharp downturn in world trade and industrial production will not continue at a 10 to 20% rate quarter-on-quarter for the next three or four years,” Mussa said.
The ADB’s Lee warned governments against prematurely winding down their stimulus measures or tightening monetary policies as this could derail the fragile recovery.
“Any hasty tightening of the monetary and fiscal polices will easily disrupt this ongoing recovery, especially in the situation of a weak recovery of the global economy,” he said.
“The timing of withdrawing monetary stimulus is very important for industrialized countries but also for Asian countries.”