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Slowdown Forecast for Developing Asian Economies

The Asian Development Bank forecast Wednesday that emerging Asian economies would cool somewhat this year but maintained its view that growth in the region would easily continue to outpace the anemic expansion in Europe, Japan and the United States.

The greatest risk to Asia’s enviable growth rates in the near term is the sovereign debt crisis in the euro zone,” the bank stated in its 2012 outlook for the region. “But Asia is fairly well placed to weather the storm.”

Battered by the aftermath of the global financial crisis and beset by lingering worries about the debt burdens accumulated by many euro zone nations, the world’s developed economies will expand just 1.1 percent this year before the rate ticks up to 1.7 percent in 2013, according to the A.D.B.’s projections.

By contrast, the economies of developing Asia — a region that includes China, India and Southeast Asian nations like Indonesia and Thailand, but not Japan — should be able to expand 6.9 percent this year, the A.D.B. said.

That is a slowdown from the 7.2 percent recorded in 2011 and well below the 9.1 percent in 2010, when the region was rebounding from the aftermath of the global financial crisis. The new 2012 forecast also represented a downward revision from the 7.5 percent growth that the A.D.B. had projected last September.

Still, economic growth is likely to accelerate again, to 7.3 percent in 2013, the bank said. “Developing Asia will largely maintain its growth momentum in the next couple of years, despite weak global demand,” it stated.

The bank also remained fairly optimistic on China, whose economy has become an important engine for growth not just in Asia, but for the world as a whole.

Growth in China has moderated in recent months as government measures to rein in the rapid expansion of last year have taken hold. Nevertheless, many economists expect the Chinese economy to grow 8 percent to 9 percent this year, compared with 9.2 percent in 2011. On Wednesday, the A.D.B. projected growth of 8.5 percent for 2012 and 8.7 percent for 2013.

Economies across developing Asia have skirted the global turmoil of the past few years, in large part because of their low exposure to both the subprime housing crisis in the United States and the debt crisis in the euro zone.

At the same time, Asian economies have been gradually diversifying into new markets; private consumption is growing; and the authorities in much of the region have ample leeway to prop up their economies through cuts to interest rates or taxes, if needed, economists say. Still, longer-term challenges remain.

Any renewed tensions in the Middle East could send commodity prices higher again. And in Europe, a spike in borrowing costs for Spain this week highlighted investors’ continuing intense nervousness about the ability of several euro zone countries to reduce their debt burdens and reinvigorate their battered economies.

Any renewed financial market jitters could affect investment and the trade financing that oils the wheels of international trade, economists’ caution.

Developing Asian economies will also continue to face volatile capital flows and currency swings as investors, reacting to the shifting risks in Europe and elsewhere, move capital in and out of the region.

And although Asian economies have become less dependent on exports to Europe and the United States in recent years, those regions remain important markets for goods made in Asia. “Asia is not yet completely decoupled from the developed world,” Changyong Rhee, chief economist at the Asian Development Bank, said at a news conference in Hong Kong. “There are many channels through which a crisis in Europe can affect Asia.”

At the same time Wednesday, the A.D.B. highlighted the rapidly widening gap between rich and poor in Asia as a new potential threat to stability.

Income inequality has widened markedly in much of the region over the past two decades, to an extent that it could give rise to social tensions, undermine good governance and tempt policy makers to promote inefficient populist manoeuvres, the bank noted.

“Some inequality, of course, is unavoidable — it reflects the structural transformation of a country’s economy,” Mr. Rhee said.

But, he added, the speed at which the rich-poor gap has widened in some economies threatens to undermine the quality of growth across Asia.