ADB Cuts Developing Asia’s Growth, Inflation Forecasts on China

The Asian Development Bank cut the region’s inflation and growth forecasts for this year and next, as Europe’s sovereign debt crisis and fiscal contraction in the U.S. reduces expansions from China to India.

The Manila-based lender forecast Asia excluding Japan will expand 6.1 percent this year, according to the Asian Development Outlook 2012 Update report released today, compared with a July estimate of 6.6 percent and an April prediction of 6.9 percent. It also reduced the region’s inflation projection to 4.2 percent from 4.4 percent.

“Deceleration in the region’s two giants -- the People’s Republic of China and India -- and in other major exporting economies is tempering earlier optimism,” the ADB said. “The ongoing sovereign debt crisis in the euro area and the looming fiscal cliff in the U.S. pose major risks to the outlook.”

China’s manufacturing contraction persisted last month, Japanese industrial companies grew more pessimistic and South Korean exports fell, reports showed this week, signaling Asia’s biggest economies have yet to reverse their slowdowns. All of Asia’s eleven most-traded currencies except the Indonesian rupiah advanced against the dollar in the past three months as policy makers took steps to spur growth.

India’s central bank unexpectedly reduced the amount of deposits lenders must set aside as reserves last month, while Vietnam cut interest rates and South Korea announced 5.9 trillion won ($5.3 billion) of spending and tax relief.

U.S. Federal Reserve Chairman Ben S. Bernanke said this week the monetary authority will sustain record stimulus even after the expansion gains strength, while also saying policy makers don’t expect the economy to remain weak through 2015.

’Extreme Shock’

Central banks in Japan, South Korea, Indonesia, Thailand, India and the Philippines are scheduled to meet this month to determine monetary policy as the region gauges the need for more stimulus measures. The Bank of Japan expanded easing in September, joining peers in Europe and the U.S.

Asia’s exports have faltered as slower global growth crimps demand for the region’s goods. Malaysia’s shipments abroad unexpectedly slipped for the first time in three months in July, while Thailand and South Korea have recorded three straight months of declines.

“If an extreme shock were to materialize, most economies in the region have room to use fiscal and monetary tools to respond,” the ADB said. “However, there is currently no region-wide need to pursue aggressive demand management. Rather, efforts should focus on the medium-term issue of continued soft external demand.”

Oil Eases

Crude oil has fallen about 7 percent this year, helping ease price pressure. Gains in Indonesia slowed for the first time in four months in September, while in Malaysia they have stayed at the slowest pace in more than two years. Still, South Korea reported a quickening last month, and the Philippine central bank has raised its inflation forecast for this year.

Growth in developing Asia will be 6.7 percent next year, the ADB forecast today, down from a previous estimate of 7.1 percent. Inflation will be 4.2 percent, slower than an earlier forecast of 4.4 percent, it said.

China will expand 7.7 percent this year, less than the previous forecast of 8.2 percent. India’s economy will grow 5.6 percent in the year ending March 31, it said, compared with the earlier estimate of 6.5 percent.

Asia can bolster growth by boosting its services industry, which accounts for almost half the region’s output and employs 34 percent of its workers, the ADB said.

“Developing Asia must adapt to a moderate growth environment, and countries will need to do more to reduce their reliance on exports, rebalance their sources of growth, and increase their productivity and efficiency,” Changyong Rhee, ADB’s chief economist, said in a statement.

To contact the reporter on this story: Karl Lester M. Yap in Manila at

To contact the editor responsible for this story: Stephanie Phang at

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