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Developing Asia Rebound Faces Risk From Capital Flows, ADB Says

Developing Asia’s growth recovery faces the risk of asset bubbles from rising capital inflows, the Asian Development Bank said.

Gross domestic product will increase 6.6 percent in 2013 and 6.7 percent next year, the Manila-based lender said in its Asian Development Outlook 2013 released today. Consumer prices will rise 4 percent in 2013 and 4.2 percent next year, it said.

Officials from South Korea to the Philippines have taken action, or are studying measures, to counter the inflow of capital to the region amid policy easing by some developed economies. The Bank of Japan said on April 4 it would double the monetary base by the end of 2014 in the nation’s biggest-ever round of asset purchases, joining the Federal Reserve and the European Central Bank in boosting stimulus to support growth.

“Advanced economies will likely continue their accommodative monetary stance, and authorities in developing Asia must safeguard the soundness of the finance sector to avoid the emergence of disruptive asset bubbles,” the ADB said. “Robust growth has largely eliminated slack productive capacity in many regional economies such that loose monetary policy risks reigniting inflation.”

The Fed, the ECB and the BOJ have more than doubled the combined size of their balance sheets since the global financial crisis broke out in 2007, expanding them by a total $4.7 trillion. Japan’s actions may increase volatility in the currency markets, Philippine central bank Governor Amando Tetangco said yesterday.

Yen Weakens

The yen yesterday dropped to the weakest level against the dollar since June 2009. Meanwhile, the Thai baht last month reached the strongest level since a devaluation in 1997 sparked the Asian financial crisis, and the Philippine Stock Exchange Index (PCOMP) touched a record high this month.

China will probably grow 8.2 percent this year and 8 percent in 2014 as more stringent environmental standards and policies to make growth inclusive may slow the pace of investment, ADB said in the report. India’s economy may expand 6 percent in 2013 and 6.5 percent next year, it said.

Southeast Asia is forecast to grow 5.4 percent this year and 5.7 percent next year, with strong domestic demand and wage pressures likely to cause inflation to accelerate to 4.2 percent this year, the report said.

To contact the reporter on this story: Sharon Chen in Singapore at schen462@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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