MANILA – The Asian Development Bank said Wednesday that growth in Asia, weighed down by weak global demand, is expected to ease to 6.9 percent this year from 7.2 percent in 2011.
The Manila-based bank noted, however, in its Asian Development Outlook 2012 that most economies in the region will remain robust and are expected to pick up to 7.3 percent in 2013 due to private consumption.
“The slowdown in the major industrial countries in mid-2011 — especially the heightened uncertainty emanating from the eurozone — and the deteriorating terms of trade from elevated oil prices helped slow the region’s growth.
As a result, the engines of growth in 2011 were not as uniform and robust as those in 2010,” the report says. “Investment weakened sharply toward end-2011, weighing on the outlook for the coming quarters, particularly in open economies such as Hong Kong, (South) Korea, Malaysia, Taiwan and Thailand.”
“Continued uncertainties in the eurozone and a further slump in global trade pose the biggest threats to the growth outlook,” ADB chief economist Changyong Rhee said.
At the same time, Rhee said, “Asian economies are gradually diversifying into new markets, private consumption is trending up and the region has limited direct financial exposure to the eurozone, which should help sustain its momentum.”
External trade was subdued in 2011, but domestic demand helped take up some of the slack, with the region’s current account surplus falling to 2.6 percent of gross domestic product from 4 percent in 2010.
“Inflation is gradually easing but remains a potential threat given volatility in food and fuel prices,” the report says.
A significant dip in investment late in 2011, and the possibility of growing unpredictability in foreign capital flows in and out of the region are other factors policymakers must be wary of, it adds.
“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 chains where Asia plays an integral role,” the report notes.
Most economies in the region have sharply improved finances in the wake of the 2008 global financial crisis and have the capacity to respond to further external weakness, it says.
“There is no clear case for short-term policy responses, but if inflationary pressures build up again and capital inflows resume, there may be a need to readjust monetary policy to maintain price stability,” Rhee said.
In the longer term, the report says policymakers will need to strike a balance between paying down debt and supporting growth that is both inclusive and environmentally sustainable.