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Asia: Welcome To The "New Era Of Moderate"

Henry Chambers Asia Assistant 5 October 2012

Asia: Welcome To The

The GDP growth rate for developing Asia in 2012 will be significantly less robust then it has been in recent years, according to a report by the Asian Development Bank.

In its Asian Development Outlook 2012 Update, released this week, ADB projects the region’s GDP growth dropping from 7.1 per cent in 2011 to 6.1 per cent in 2012. This is down 0.5 per cent on April’s 6.6 per cent estimate.
The ADB stated that this cooling of growth indicates developing Asia has entered a “new era of moderate”. One of the main reasons for this is an over-dependency on exports. After previous years of rapid growth, the continued slump in overall global demand has started to take its toll on the open economies of most Asian countries.
The regions' two super-economies, China and India, were singled out and shown to be responsible in large part for the diminished growth figures. China has been dropping from 9.3 per cent in 2011 to 7.7 per cent in 2012, with 8.1 per cent forecast in 2013, India likewise slowing to 5.6 per cent this year. India’s GDP is, however, predicted to bounce back to 6.7 per cent in 2013.
The European sovereign debt crisis and the US fiscal cliff, due in 2013, are two serious issues with the capacity to negatively affect the forecast. The essential fear underlying both issues is that it will result in many big banks moving to deleverage their positions in Asia, in an attempt to balance their books, as happened in 2008 and 2010.
As a means of redressing this potential problem, the ADB advocates growing the already rapidly expanding service industry, with an emphasis on high-value modern sectors such as finance and communication technology. The movement away from an agriculture and industry based export-dependent economy towards a service economy would reduce many countries exposure and liability to foreign crises.
Service now accounts for almost half of developing Asia’s output, ADB said, and has been a massive source for inclusive jobs, employing a third of the region's workers.
The lack of highly skilled workers is a continuing issue, as is the relatively poor state of most countries infrastructure programs. Most burdensome of all is the antiquated regulation that is frequently in place, stifling competition both domestically and abroad. ADB notes that easing domestic regulations and trade barriers is critical to fostering a more competitive and more productive service industry.
The revised figures are not all negative. The reduced momentum of growth is expected to alleviate price pressures in the region somewhat, which should lead to a reduction in inflation from 5.9 per cent in 2011 to 4.2 per cent in 2012. This is provided that there are no spikes in international food and fuel prices as happened in 2008.
Overall the report does not conclude that widespread countercyclical policy needs to be implemented as a point of urgency. It also notes that the reduction in inflation means that many Asian economies will be able to apply monetary and fiscal stimulus more effectively if required to do so.

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