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Asia can’t rely on US consumers, says ADB chief

Asia can’t rely on US consumers, says ADB chief
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First Published: Fri, Jun 12 2009. 12 36 PM IST
Updated: Fri, Jun 12 2009. 12 36 PM IST
Tokyo: Asia cannot rely on exports to the United States for long-term economic growth because US consumers will buy less as they increase savings and pay down debt, Asian Development Bank President Haruhiko Kuroda said on Friday.
Growth in developing Asian economies will slow to an estimated 3.4% this year from a 6.3% expansion last year due to a decline in exports, Kuroda said, reiterating the development lender’s forecasts published in March.
The ADB expects Asian growth to accelerate to 6.0% in 2010 as the US, Japan and Europe recover in the second half of the year, he said. The outlook beyond next year is less favourable as Asian countries’ ratio of exports to gross domestic product is still high, he said.
“I’m optimistic on Asia’s short-term outlook but pessimistic on the long term,” Kuroda said in a speech in Tokyo.
“The US savings rate could rise to as high as 10% and suppress consumption. It’s becoming impossible for Asia to rely on the US consumer,” he said.
Asian countries will recover more quickly from the global recession than developed nations, because the Asian financial system has limited exposure to subprime mortgage derivatives that roiled the world’s largest investment banks, Kuroda said.
A rapid recovery will likely put pressure on Asian currencies to rise against the dollar, he said. It is important for Asian countries to keep their currencies stable against others in the region as they will likely have to accept some appreciation versus the dollar, he said.
To ensure long-term growth, Asian countries will have to support domestic demand by improving social welfare services, he said.
“We’re calling for a rebalancing in Asia,” Kuroda said.
“Asian governments need to improve education, health care and social security to discourage savings and encourage domestic consumption.”
Kuroda was also pessimistic on the US and Europe, saying banks on both sides of the Atlantic will need to raise more capital as they still have rotten assets sitting on their balance sheets. He said European banks are also at risk as they are exposed to an economic crisis stemming from pressure on Latvia to devalue its currency.
A US recovery may also be delayed as residential and retail property prices will fall well into next year, Kuroda said. The balance of risks for developed and emerging countries has shifted to deflation from inflation, he said.
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First Published: Fri, Jun 12 2009. 12 36 PM IST