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Asia Economy Last Updated: Apr 9, 2013 - 10:34 AM


Growth in Asia to pickup in 2013/ 2014; China loses labour competitiveness
By Finfacts Team
Apr 9, 2013 - 8:19 AM

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Rising private consumption and stronger intraregional trade will spur a pickup in growth in developing Asia in 2013 and 2014, as economic activity in the US and Europe remains in the doldrums, the Asian Development Bank (ADB) says in a major new report. The report highlights China's declining labour competitiveness, with surging wages and other costs outstripping labour productivity. This trend, exacerbated by the strong exchange rate, has already seen many low-cost and labour-intensive manufacturing jobs shift to cheaper locales, such as Southeast Asia. The ADB says to arrest the slide in competitiveness, policymakers need to ensure minimum wages do not outpace productivity growth and firms are given incentives to provide on-the-job training and invest in new technologies. Measures are also needed to reform the hukou residential registration system to reduce migration costs and improve labour market flexibility.

“The rebound in People’s Republic of China (PRC) and solid momentum in Southeast Asia are lifting the region’s pace after the softer performance of 2012,” said ADB chief economist Changyong Rhee. “Domestic spending, in particular consumption, is the main driver of the recovery, and is a welcome shift from the reliance on the markets of advanced economies.”

ADB’s flagship annual economic publication, 'Asian Development Outlook 2013' (ADO 2013, pdf), released today, forecasts gross domestic product (GDP) growth in developing Asia of 6.6% in 2013 and 6.7% in 2014. In 2012, the region grew 6.1%.

The report warns that political risks linked to wrangling over the US debt ceiling, fatigue over tough austerity measures in the eurozone, and long simmering tensions over border disputes in Asia present the main threats to the near term outlook. It notes that the region’s favorable fiscal position cannot be taken for granted, with improved revenue efficiency, better governance, and other longer-term structural issues needing to be addressed.

The report projects stronger economic activity to spur renewed price pressures, with inflation seen moving up from 3.7% in 2012 to 4.0% in 2013 and 4.2% in 2014. These pressures remain manageable for now, but will need to be monitored closely, especially as strong capital inflows raise the specter of potential asset market bubbles.

Across the subregions, East Asia will set the pace with the highest projected growth of 7.1% in 2013 and the same in 2014. The PRC (China) - - the world’s second largest economy -- is forecast to expand 8.2% in 2013 on the back of rising domestic demand and improved exports, with spillover benefits for neighboring economies. Growth will edge back slightly to 8.0% in 2014 as the government moves to cool pressure on the environment and to address income inequality.

South Asia will see a turnaround after two years of economic softening, with growth estimated at 5.7% in 2013 and 6.2% in 2014. India will lead the upturn, with projected growth of 6.0% and 6.5%, but the world’s second most populous country is still struggling to realize its full potential, with structural and policy issues inhibiting investment.

Southeast Asia was the only subregion to see growth accelerate year-on-year in 2012, led by a recovery in Thailand and strong public spending in the Philippines. This buoyancy is set to continue on the back of robust consumption, rising investment and increased intraregional trade, with GDP growth projected at 5.4% in 2013 and 5.7% in 2014. The impending startup of the ASEAN Economic Community in 2015 will enlarge trade volumes within this bloc of dynamic economies, helping to diversify export markets, the report says.

Higher public spending, particularly in Kazakhstan and Azerbaijan, will boost Central Asia, with projected growth of 5.5% in 2013 and 6.0% in 2014. The completion of some major public construction projects, including a large liquefied natural gas pipeline in Papua New Guinea (PNG), will see growth in the Pacific cool slightly to 5.2% in 2013. Growth in the Pacific is expected to bounce back to 5.5% in 2014 as exports commence from the PNG pipeline and elsewhere in the subregion new public construction activity gets under way, including post-cyclone reconstruction work. A promising pickup in tourist numbers should also benefit some smaller Pacific economies.

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