Asian Development Bank Forecasts Stable Asian GDP Growth in 2012, with Uptick in 2013

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Although weak global demand will weigh on developing Asia in 2012, growth rates in most economies in the region remain robust and should move back up in 2013, with private consumption providing support, according to the Asian Development Bank's latest report.

GDP in developing Asia is forecast at 6.9% in 2012, rising to 7.3% in 2013. GDP growth came in at 7.2% in 2011 and 9.1% in 2010, as the region rebounded from the global financial crisis, according to a report titled "Asian Development Outlook 2012" (ADO 2012).

"Continued uncertainties in the eurozone and a further slump in global trade pose the biggest threats to the growth outlook," said Changyong Rhee, the bank's chief economist. "At the same time, Asian economies are gradually diversifying into new markets, private consumption is trending up, and the region has limited financial exposure to the Eurozone, which should help sustain its momentum."

Asia must be ready to respond to any further major shocks in the Eurozone, which could stall an exports recovery, dry up trade finance, or undermine key global supply chains where Asia plays an integral role. Most economies in the region have sharply improved finances in the wake of the 2008 financial crisis and have the capacity to respond to further external weakness.

External trade was subdued in 2011, but domestic demand helped pick up some of the slack, with the region's current account surplus falling to 2.6% of GDP from 4% in 2010. Inflation is gradually easing, but remains a potential threat given volatility in food and fuel prices. A significant dip in investment in 2011 and the possibility of growing unpredictability in foreign capital flows in and out of the region are other factors policy policymakers must watch.

"There is no clear case for short-term policy responses, but if inflationary pressures build up again and capital flows resume, there may be a need to readjust monetary policy to maintain price stability," Rhee said.

In the longer term, policymakers will need to strike a balance between paying down debt while supporting growth that is both inclusive and environmentally sustainable.

Across the region, East Asia will see a deceleration in growth to 7.4% this year, down from 8% in 2011, weighed down by weaker exports and investment. The world's second-largest economy, China, will lead the way, with growth set to moderate to 8.5% and 8.7% for 2012 and 2013, down from 9.2% in 2011.

Growth will remain subdued in South Asia at 6.6% in 2012, tempered by weak demand and fiscal limitations. The pace of expansion will accelerate to 7.1% in 2013, driven by the Indian economy, which is projected to increase to 7.5% growth.

Southeast Asia will see growth quicken on the back of the continued recovery in the Thai economy, with GDP expanding to 5.5% in 2012 from 4.6% in 2011.

Central Asia will see little change in economic activity for 2012, with projected growth of 6.1% reflecting the weak conditions in the eurozone and sluggish activity in the Russian Federation. Growth in the Pacific is set to moderate to 6% in 2012 and 4.1% in 2013, as Papua New Guinea, the largest economy in the region, sees a winding down of infrastructure projects that stimulated growth in 2011.

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