ADB forecasts 'robust recovery' for developing Asia

Developing Asia's economies were on track for a "robust recovery", the Asian Development Bank (ADB) said Tuesday, with India and China working as the engines of growth.

However, it warned that the region could still be at risk if stimulus measures introduced to counter the global downturn were removed too soon or if the world economy suffered any further jolts.

The bank said developing Asia would grow 7.5 percent this year -- outpacing the 5.2 percent seen in 2009 -- although this would slow slightly to 7.3 percent in 2011.

The forecast is still below the region's record 9.6 percent expansion seen in 2007.

"Developing Asia's recovery has taken firm hold and a return to stronger and sustainable growth is now in sight if the region can meet the challenge of strengthening domestic demand," said ADB Chief Economist Jong-Wha Lee.

The region's prospects improved after better-than-expected growth in the second half of 2009, a boost driven by the "strong performances" of the Chinese and Indian economies, the bank said.

"(The region) can look ahead to a robust recovery in the next two years," the bank said.

Fiscal stimulus measures designed to counter the global financial meltdown will likely continue to lure foreign investment, while rising incomes and lower unemployment should get consumers spending more, it added.

That spending will likely boost inflation to about four percent this year and again in 2011, up from 1.5 percent in 2009, the bank said.

However it said: "There is concern that as stimulus measures are unwound, particularly in the major economies, the strength of private demand is not healthy enough to take over."

Lee told a press conference in Hong Kong that appreciation of the Chinese yuan could support the stability of the region's economy and curb inflationary pressure.

"Maybe this is the right time to increase the exchange rate (of the yuan). Increasing the exchange rate flexibility will not only help China, but also the region as a whole," he said.

The bank is also concerned that the region's early recovery is "already attracting potentially volatile capital flows, complicating macroeconomic management."

"We are concerned that the increase in asset prices in Hong Kong and China will spread to other countries in the region. That will be very risky," Lee said.

Rising food prices, which disproportionately affect the poor, also pose a risk, the ADB said.

The report warned that government policy makers must steer their countries through an uncertain environment with a "timely return to sound and responsible fiscal and monetary policies".

"These served the region well when the crisis broke, and authorities need to adapt them appropriately as recovery takes hold and the crisis recedes," it said.

East Asia -- including Hong Kong, China, Korea, and Taiwan -- is forecast to lead the region with an 8.3 percent rise in gross domestic product in 2010, up from 5.9 percent in 2009, the report said.

Southeast Asian economies will grow 5.1 percent this year, from 1.2 percent in 2009, as countries including Thailand, Cambodia, and Malaysia see an upswing in exports, the bank said.

India will lead South Asia's 7.4 percent GDP increase this year, the bank said, up from a 6.5 percent rise in 2009.

Central Asia, including Kazakhstan and Georgia, will see 4.7 percent economic growth compared with 2.7 percent last year, the bank said.

Pacific island nations, including Fiji and Papua New Guinea, are expected to see their economies expand 3.7 percent in 2010, outpacing a 2.3 percent rise last year, the report said.

The Manila-based lender's annual report looks at 44 jurisdictions stretching from the former Soviet states of Central Asia to some Pacific islands, but excludes developed countries such as Japan, Australia and New Zealand.

source AFP

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