Wednesday, July 21, 2010
ADB sees Asian growth slowing in 2011, key risks
SINGAPORE (Dow Jones)--Economic growth in East Asia will slow next year with the removal of stimulus spending across the region and the impact of monetary tightening in China, the Asian Development Bank said Tuesday.
The Manila-based lender remains upbeat about the region’s prospects, however: The ADB upgraded its 2010 growth forecast for emerging East Asia to 8.1%, from 7.7% in an April report. That growth should moderate in 2011, but still come in at 7.2%, the bank said.
The ADB left its growth forecast for China at 9.6% this year and 9.1% in 2011, with Japan predicted to grow at 2.8% and 1.4%, respectively.
The bank’s prediction of slower growth next year is the latest warning that the global economy is losing momentum after staging a strong recovery from the 2008 economic crisis, following similar remarks from the International Monetary Fund earlier this month.
Among key risks to its forecasts, the ADB cited the financial crisis in Europe and potential disruptions to the shaky economic recovery in advanced economies. It also noted the destabilizing effect of capital flows chasing high interest rates in Asia at a time of ultra-low rates in the U.S. and Europe.
The report also warned against possible policy mistakes as Asian countries pare back fiscal stimulus spending and tighten monetary policy. That’s already a matter of debate, especially in China, where a reduction of liquidity has led to a steep stock-market drop and fuelled concern over its effect on economic activity next year.
In a separate note Tuesday, the ADB raised its 2010 forecasts for a number of countries in the region. Singapore saw the largest upgrade, with 2010 growth now projected at 12.5%, up from a forecast of 6.3% in the bank’s Asian Development Outlook in April.
However, the ADB predicts growth in Singapore will drop back to 5% in 2011, the largest slowdown anticipated in the region and a reflection of the island-state’s high exposure to global trade.
Also upgraded were the Philippines, to 5.0% growth this year from 3.8%; Malaysia, to 6.8% from 5.3%; Thailand, to 5.5% from 4.0%; and Indonesia, to 6.0% from 5.5%.
Among key Asian economies, the ADB expects only Vietnam to post higher growth next year, when the economy is seen growing 6.8%, compared with this year’s anticipated 6.5%.
In line with previous comments, the ADB said Asian countries, many of which intervene heavily in foreign exchange markets to weaken their currencies and protect export competitiveness, may need to allow for stronger currencies to help rebalance their economies away from developed-world demand and toward domestic consumption.
Regarding the Chinese yuan, which has been allowed to rise around 0.7% against the U.S. dollar over the last month after a two-year peg, the ADB said the pace of future appreciation must depend on China’s economic performance, and praised Beijing for its currency management.
“What’s important is that you need to eliminate the chance for a one-way bet on the forex market,” said Srinivasa Madhur, an ADB senior director.
“I’m sure they (the Chinese authorities) will pick the right pace.”
In addition, the ADB noted that, by lowering the prices of commodities and other imports, stronger currencies would help control inflation, which it said “remains manageable” but is running above average in most countries in the region.
“With a few exceptions, it is now time to begin unwinding policy stimulus...using a judicious mix of currency appreciation and interest-rate adjustment,” the ADB said.
In general, the region is feeling only a limited impact from Europe’s sovereign debt crisis. Financial systems in emerging Asia remain stable, with banks well-capitalized and showing strong profitability, the ADB said.
Another positive for Asia is that stimulus in the region was smaller than elsewhere, so the scale of unwinding will likewise be smaller, it added.
ADB sees Asian growth slowing in 2011, key risks
SINGAPORE (Dow Jones)--Economic growth in East Asia will slow next year with the removal of stimulus spending across the region and the impact of monetary tightening in China, the Asian Development Bank said Tuesday.
The Manila-based lender remains upbeat about the region’s prospects, however: The ADB upgraded its 2010 growth forecast for emerging East Asia to 8.1%, from 7.7% in an April report. That growth should moderate in 2011, but still come in at 7.2%, the bank said.
The ADB left its growth forecast for China at 9.6% this year and 9.1% in 2011, with Japan predicted to grow at 2.8% and 1.4%, respectively.
The bank’s prediction of slower growth next year is the latest warning that the global economy is losing momentum after staging a strong recovery from the 2008 economic crisis, following similar remarks from the International Monetary Fund earlier this month.
Among key risks to its forecasts, the ADB cited the financial crisis in Europe and potential disruptions to the shaky economic recovery in advanced economies. It also noted the destabilizing effect of capital flows chasing high interest rates in Asia at a time of ultra-low rates in the U.S. and Europe.
The report also warned against possible policy mistakes as Asian countries pare back fiscal stimulus spending and tighten monetary policy. That’s already a matter of debate, especially in China, where a reduction of liquidity has led to a steep stock-market drop and fuelled concern over its effect on economic activity next year.
In a separate note Tuesday, the ADB raised its 2010 forecasts for a number of countries in the region. Singapore saw the largest upgrade, with 2010 growth now projected at 12.5%, up from a forecast of 6.3% in the bank’s Asian Development Outlook in April.
However, the ADB predicts growth in Singapore will drop back to 5% in 2011, the largest slowdown anticipated in the region and a reflection of the island-state’s high exposure to global trade.
Also upgraded were the Philippines, to 5.0% growth this year from 3.8%; Malaysia, to 6.8% from 5.3%; Thailand, to 5.5% from 4.0%; and Indonesia, to 6.0% from 5.5%.
Among key Asian economies, the ADB expects only Vietnam to post higher growth next year, when the economy is seen growing 6.8%, compared with this year’s anticipated 6.5%.
In line with previous comments, the ADB said Asian countries, many of which intervene heavily in foreign exchange markets to weaken their currencies and protect export competitiveness, may need to allow for stronger currencies to help rebalance their economies away from developed-world demand and toward domestic consumption.
Regarding the Chinese yuan, which has been allowed to rise around 0.7% against the U.S. dollar over the last month after a two-year peg, the ADB said the pace of future appreciation must depend on China’s economic performance, and praised Beijing for its currency management.
“What’s important is that you need to eliminate the chance for a one-way bet on the forex market,” said Srinivasa Madhur, an ADB senior director.
“I’m sure they (the Chinese authorities) will pick the right pace.”
In addition, the ADB noted that, by lowering the prices of commodities and other imports, stronger currencies would help control inflation, which it said “remains manageable” but is running above average in most countries in the region.
“With a few exceptions, it is now time to begin unwinding policy stimulus...using a judicious mix of currency appreciation and interest-rate adjustment,” the ADB said.
In general, the region is feeling only a limited impact from Europe’s sovereign debt crisis. Financial systems in emerging Asia remain stable, with banks well-capitalized and showing strong profitability, the ADB said.
Another positive for Asia is that stimulus in the region was smaller than elsewhere, so the scale of unwinding will likewise be smaller, it added.