Asian Development Bank Report

This year and in 2012 as key trading partners reduce orders amid worries about the global economy, a report said.

 

The Asian Development Bank study said the region's economies would expand 7.5 per cent this year, down from its 7.8 per cent forecast in April, while 2012 would see 7.5 per cent growth, down from 7.7 per cent.

Slower demand in the US and Europe "continues to cast a cloud over the region," said the Manila-based bank, adding that export growth in leading economies, including trade powerhouse China, had slowed "substantially."

"At the same time, strong domestic consumption and expanding intra-regional trade are helping to underpin still solid growth levels (in developing Asia)," said Changyong Rhee, the bank's chief economist.

"Since the onset of the global recovery, the growth in exports to (China) from several Asian economies has been stronger than their exports to the rest of the world."

The share of regional trade among Asia's largest economies increased to 47 per cent in the first half of 2011, up from 42 per cent in 2007, the report said.

The bank also warned that rising prices "remain a threat to many economies" with developing Asia's inflation rate expected to average 5.8 per cent this year, up from 5.3 per cent forecast in April, it added.

Regional inflation should then cool to 4.6 per cent in 2012 as commodity prices fall " but central banks will still need to keep a close watch and may need to take remedial action," the ADB said.

Concerns about hot money flooding the region have eased as capital flows slowed in recent months, but there was a risk of an upsurge when advanced economies bounce back and debt markets settle, the report said.

"Capital has so far been flowing into the region at a manageable pace, but global economic uncertainty means policy makers should be prepared for greater volatility in capital flows," the report said.

The bank also warned that policymakers would have to focus on the region's demographic landscape with young populations "growing older very rapidly, which will put many economies under pressure" in the coming decades.

The bank's report looked at 44 jurisdictions stretching from the former Soviet states of Central Asia to some Pacific islands, but excluded developed countries such as Japan, Australia and New Zealand.

East Asia -- including Hong Kong, China, South Korea, and Taiwan -- remains the key economic driver for developing Asia, the report said, with growth forecast at 8.1 per cent this year.

That would fall to 8.0 per cent in 2012 as China's economic engine slows, it added.

Inflation-hit South Asia will see its economies expand 7.2 per cent this year -- with inflation forecast to hit 9.1 per cent -- while the region's India-led growth would hit 7.7 per cent in 2012, it said