Developing Asia’s economic growth is expected to pick up this year despite persistent weakness in the US and European economies, the Asian Development Bank said on Tuesday.

But the Manila-based bank warned that the recovery was vulnerable to shocks, with political disputes emerging as the main threats.

“Political discord surrounding fiscal debates in the United States, austerity fatigue in the euro area, and border disputes in Asia could jeopardise macroeconomic stability,” the bank’s annual Asian Development Outlook report said.

Outlook

The report said gross domestic product (GDP) of Asia-Pacific’s 45 developing economies was projected to expand 6.6 per cent in 2013 and 6.7 per cent in 2014, from last year’s 6.1 per cent.

“Developing Asia is bouncing back from the slowdown in the previous year,” the report said. “Robust domestic demand and greater reliance on regional trade will accelerate growth.” A rebound in China and a solid performance in South-East Asia, which was the only sub-region to enjoy faster growth last year, are also contributing to the region’s momentum.

China to lead

China, the second-largest economy in the world, will again lead the region with expected growth of 8.2 per cent in 2013, rebounding from 7.8 per cent in 2012. Growth will ease to 8 per cent in 2014, the report said.

South-East Asia was expected to remain buoyant, with GDP growth projected at 5.4 per cent in 2013 and 5.7 per cent in 2014.

Inflation watch

ADB chief economist Changyong Rhee said Asian economies must watch out for creeping inflation and the emergence of disruptive asset bubbles amid strong capital inflows.

According to the report, since stronger economic activity could spur renewed price pressures, inflation was projected to rise to 4 per cent in 2013 and 4.2 per cent in 2014, from 3.7 per cent in 2012.

“These pressures remain manageable for now, but will need to be monitored closely, especially as strong capital inflows raise the spectre of potential asset market bubbles,” the bank said.

Energy reforms

Rhee also called on Asia to reform the way it produces and consumes energy to ensure sufficient supply without causing environmental disaster.

“Asia could be consuming more than half the world’s energy supply by 2035, and without radical changes, carbon emissions will double,” he said.

“Asia must both contain rising demand and explore cleaner energy options, which will require creativity and resolve, with policymakers having to grapple with politically difficult issues like fuel subsidies and regional energy market integration,” he added.

East Asia, which includes China, has the highest projected growth across the sub—regions at 7.1 per cent in 2013 and 2014.

South Asia’s growth will expand 5.7 per cent in 2013 and 6.2 per cent in 2014, while Central Asia’s economy is projected to increase 5.5 per cent in 2013 and 6 per cent in 2014, the report said.

Growth in the Pacific will slow down to 5.2 per cent in 2013 before picking up to 5.5 per cent in 2014.

(This article was published on April 9, 2013)
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