ADB forecasts below 8% economic growth for Asia

Asian economic growth will ease slightly to just under 8 per cent for the next two years as the region continues a solid recovery led by China and India, the Asian Development Bank has said, although rising food prices threatened to throw more people into poverty.

The Manila-based lender said the region’s economic recovery is still firm even though those growth rates are lower than the 9 per cent expansion in 2010, when an exceptionally strong rebound from the global financial crisis took place.

The region included in the bank’s annual economic report - 45 developing or newly industrialising Asian economies excluding Japan - are forecast to grow 7.8 per cent in 2011 and 7.7 per cent in 2012.

“Developing Asia, having shown resilience throughout the global recession, is now consolidating its recovery and rapid expansion in the region’s two giants the People’s Republic of China and India will continue to lift regional and global growth,” the Chief Economist, Mr Changyong Rhee, said.

However, the bank warned that inflation remains one of the region’s biggest challenges, with prices forecast to rise 5.3 per cent this year before tapering off to 4.6 per cent in 2012.

Asia’s developing countries are home to two-thirds of the world’s poor, who tend to spend more of their incomes on food and will be hit harder by rising food prices. “This widens income inequality and could potentially lead to social tensions,” the report said.

A weak US economy, sovereign debt problems in euro-zone countries and Japan’s recovery from a devastating earthquake and tsunami are other possible threats to growth, the ADB said.

Higher oil prices stemming from unrest in West Asia could also undermine the region’s recovery, the bank said, while also noting that Japan’s nuclear crisis is raising concerns about nuclear energy as an alternative energy source.

The ADB encouraged Asia’s emerging economies to forge the so-called “South-South” links with other developing nations in the southern hemisphere to avoid relying on the wealthy industrialised West, whose economies continue to slump after the 2008 global financial crisis.

East Asian economies including China, Hong Kong, Taiwan and South Korea will lead growth, expanding an overall 8.4 per cent in 2011 and 8.1 per cent in 2012.

The ADB said China’s economic expansion will continue to be driven by government investment in infrastructure and other fixed assets, although it will slow as stimulus spending falls and interest rates rise. Export growth will also slow as demand from major Western markets remains sluggish, the ADB said.

India’s economy, which grew 8.6 percent in 2010, is forecast to expand 8.2 per cent in 2011 before strengthening to 8.8 per cent in 2012.

Southeast Asia, including Singapore, Thailand, Malaysia and the Philippines, will grow 5.5 per cent in 2011 and 5.7 per cent in 2012. Indonesia and Vietnam are expected to expand more than 6 per cent for the two-year period.

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