Resilient developing Asian region to lead global economic recovery

MANILA, Philippines (Xinhua) – Developing Asia is expected to register a stronger-than-expected 3.9 percent growth this year as timely economic policies and programs implemented by Asian governments will keep the region afloat amid the global recession.

The Asian Development Bank has forecast in March that the region will only expand by 3.4 percent as most of its export driven economies are expected to be crippled by falling demand. But on Tuesday, the Manila-based lender revised its forecast to a higher 3.9 percent. ADB also upgraded its growth forecast for 2010to 6.4 percent from 6 percent forecast in March.

In its flagship annual economic publication, Asian Development Outlook 2009, the Manila-based bank said the regional governments’ “quick and decisive response” to the global downturn softened its impact to developing Asian economies. Massive stimulus packages, tax cuts, monetary easing policies and social assistance encouraged consumption and investments.

“Almost every large economy in developing Asia has implemented measures to stimulate aggregate demand through fiscal and monetary expansion. In turn, households were relatively quick to spend fiscal windfalls that came in the form of tax cuts and income support, giving a fillip to consumption that began to boost GDP by the second quarter of 2009,” ADB said in its report issued on Tuesday.

More than keeping the region’s economies resilient, these measures will also help in supporting its recovery. The ADB said the region is poised to achieved a V-shaped rebound, and will in fact lead the recovery from the global slowdown.

“Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” ADB Chief Economist Jong-Wha Lee said in a statement.

India and China the world’s fastest growing economies and developing Asia’s largest economies will lead developing Asia’s rebound.

Economic growth in East Asia is upgraded to 4.4 percent as China is seen to grow by 8.2 percent, beating the previous forecast of 7 percent. ADB forecasts the South Asian economies to grow by 5.6 percent from the previous 4.8 percent as the Indian economy is poised to expand by 6 percent.

Both the Chinese and Indian governments aunched huge stimulus packages and reduced key policy rates. This prevented the global recession from wiping out their recent economic gains.

The ADB said higher bank lending and fixed asset investments – which pushed the Chinese economy to expand by 7.1 percent in the first half- will continue support developing Asia’s largest economy and offset the decline in net exports.

The ADB expects that in 2010, China will grow by 8.9 percent thanks to increased infrastructure investment, construction and domestic consumption.

The Indian economy is expected to grow by 6 percent this year and 7 percent for 2010. India’s public expenditure-led growth strategy, while appropriate, also presents risks. The ADB said a huge fiscal deficit isn’t sustainable and the domestic food price inflation may create a dilemma for monetary management in 2009 as the Reserve Bank of India seeks to keep inflation expectations in check.

Growth prospects in other developing Asian countries are less sanguine. The once dynamic Southeast Asian is forecast to slow to 0.1 percent this year. ADB expects global trade to remain weak this year, dragging down the export-reliant Thai, Malaysian and Singaporean economies.

Falling remittances, investments and tourism receipts are also hurting the economies of Central Asia (which will slow to 0.5 percent) and Pacific islands (which will grow at a slower 2.8 percent).

Developing Asia’s recovery will also be affected by the global economic performance. The ADB expects the global economy to remain weak, with the economies of industrialized countries U.S., Western Europe and Japan contracting 3.7 percent in 2009.

ADB Assistant Chief Economist Joseph Ernest Zveglich Jr. said that the region alone can’t be the main driver of its own growth as most economies rely on exports to industrialized economies to support its growth.

“The region relies too much on external demand,” Zveglich said.

To develop more resilient economies, the ADB proposed developing Asia should broaden the scope and structure of its openness. Asian economies should help boost domestic demand, encourage labor mobility and promote intra regional trade to promote a more sustainable growth.

Developing Asian economies should also strengthen its domestic financial markets and support the establishment of regional capital markets
for the efficient use of regional savings.

“Combined with a stronger domestic economy, broader openness can help regional economies achieve rapid yet stable growth,” Lee said.