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
“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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