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ADB has upgraded its 2010 growth forecast for the 14 economies
of emerging East Asia to an aggregate 8.1% from the 7.7% projected in ADB’s
Asian Development Outlook 2010 published in April. The forecast for the
region’s economic growth in 2011 remains at 7.2%.
“While most emerging East Asian economies are assured of a
sharp V-shaped recovery this year, it is too early to say that the ‘V’ stands
for victory,” said Srinivasa Madhur, Senior Director of ADB’s Office of
Regional Economic Integration, which produced the AEM. “Ensuring the
sustainability of the recovery depends heavily on the correct timing, policy
mix, and pace at which economic stimulus is withdrawn. The private sector must
be strong enough to take over,” he said.
Emerging East Asia comprises the 10 economies of the Association
of Southeast Asian Nations, plus the People’s Republic of China (PRC); Hong
Kong, China; Republic of Korea; and Taiwan.
An impressive first-half performance suggests China will
continue its strong growth momentum by expanding by 9.6% this year. Measures
announced to prevent overheating will likely temper growth in 2011 to 9.1%.
These forecasts are unchanged from ADB’s April report.
After being badly hit by the global crisis in early 2009, the
newly industrialized economies of Hong Kong, China; the Republic of Korea;
Singapore; and Taiwan are forecast to grow a solid 6.2% this year, tapering off
to 4.5% in 2011. Led by Singapore’s rapid 12.5% growth, these economies should
benefit from a rebound in investment and rapid export growth.
Economic prospects for the Association of Southeast Asian
Nations (ASEAN) are also good for 2010 after a tough 2009. Leading indicators
continue to improve, with strong industrial production growth and rising
consumer confidence. Together, ASEAN is forecast to expand 6.7% this year before
moderating somewhat in 2011.
ADB has revised its 2010 growth outlook
for East Asia to 8.1% from 7.7%. Srinivasa Madhur, principal director at ADB
speaks to CNBC's Maithreyi Seetharaman, Chloe Cho & Yousef Gamal El-Din about
the three key risks that could derail this growth projection:
The AEM points to three major risks to the positive outlook for
emerging East Asia: a disruption in the recovery in advanced economies;
destabilizing capital flows; and unintended policy errors while unwinding the
With a few exceptions, the ADB says it is now time for the
region to unwind policy stimulus. In terms of policy mix, a strategy of
normalizing monetary policy first and consolidating fiscal policy subsequently
is more appropriate for most of emerging East Asia. Considering the need to
rebalance the region’s sources of growth, the bank says there is merit in
normalizing monetary conditions through a mix of currency appreciation and
interest rate adjustments rather than entirely through policy rate hikes. The
pace at which economies unwind stimulus should depend on the speed of recovery
as well as evolving risks.
In Korea; Malaysia; Singapore; Taiwan; and Thailand tightening
has already begun, and should continue at what appears to be an appropriate
Building on recent measures to slow credit expansion, China
should accelerate policy normalization by, among other things, letting the
currency appreciate at a pace appropriate to domestic economic conditions.
And in Indonesia, Philippines, and Viet Nam, unwinding policy
stimulus may need to start soon.
“It’s critical for each country to withdraw the stimulus at
an appropriate pace but greater regional coordination, especially on exchange
rates, could spur regional demand and help global economic rebalancing,”
In a separate special assessment, also released today, ADB
raised its growth forecast for all developing Asia to 7.9%, from April’s 7.5%
projection for this year. The 2011 forecast remains at 7.3%. Developing Asia
comprises 45 member countries of ADB.