Asia s economy to slow down

December 11, 2008

, HONG KONG, December 11 – Growth in Asia\’s developing economies will slow to 5.8 percent in 2009, and regional governments must boost domestic demand to counter a deeper slowdown, the Asian Development Bank said Thursday.

Fallout from economic turmoil will see growth slow from 6.9 percent this year as nervous global investors scale back regional interests and the crucial export market is hit by a drop-off in demand, the ADB said in a new report.

China, which has provided the driving force behind the region\’s stellar economic performance in the past five years, will grow at 8.2 percent next year, down from 9.5 percent in 2008, the Philippines-based institution said.

"Developing Asia — which initially looked well positioned to weather the global crisis — has come under increased pressure," the ADB said in a special report monitoring the crisis, released in Hong Kong.

"As global investors scale back emerging market assets amid continued financial system de-leveraging, Asian equities and external funding conditions have been hurt."

The report said that despite a hefty build-up of foreign exchange reserves since the 1997 Asian financial crisis, the global credit crunch is testing Asian banks\’ ability to keep lending.

Economies that depend on exports are particularly vulnerable.

"Weakening demand for manufactured goods in major industrial countries means declining export orders from Asia, with knock-on effects for industrial production," the report said.

"Global trade volume is rapidly slowing down and is expected to barely expand in 2009, creating difficulties for regional economies that rely on exports for growth."

The growth figures for developing Asia — a huge region which includes 44 countries from central Asia to Indonesia — have been revised down from previous estimates of 7.5 percent for 2008 and 7.2 percent in 2009.

Despite the gloom, Asia is relatively well-positioned to avoid the worst effects of the crisis, but policymakers must act aggressively to stimulate domestic demand and boost government spending, said the bank.

"To stimulate consumption is very important, but in the current situation it will be very difficult to increase consumer spending," Lee Jong-Wha, head of the bank\’s Office of Regional Economic Integration, told reporters.

"That is why we are saying… governments must increase their own consumption in a way to expand domestic demand.

"Governments could expand investment in infrastructure and construction, we hope it will stimulate private investment."

The ADB also recommended that policymakers act quickly against any further tightening of credit markets in the region, provide enough foreign and domestic liquidity and reinforce cross-border cooperation.

Lee said governments should also resist the temptation to intervene in foreign exchange markets, especially to depreciate currencies to try to boost the export sector.

Last year, the report said growing inflation was one of the key challenges to the region\’s economy, but Lee said inflation now appeared to have peaked. He denied that the drastic drop-off in demand could lead to deflation.

In other figures released Thursday, the bank said emerging East Asian countries — which includes the 10 members of ASEAN, plus China, Hong Kong, Taiwan and South Korea — would grow at 5.7 percent next year, down from 6.9 percent this year.

South Asia was likely to reach 6.8 growth this year and 6.1 percent in 2009, down from 8.6 percent in 2007.

The ADB\’s growth projection for India has been revised down to 7 percent in 2008 and 6.5 percent in 2009, from 9 percent in 2007.

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