ADB More Upbeat on Emerging Asian Economies for 2009 and 2010

MANILA, PHILIPPINES - Emerging East Asian economies have performed better than anticipated thanks to swift policy responses and an improved external environment. The region is set for a speedy recovery this year and in 2010.

The Asian Development Bank's (ADB) Asia Economic Monitor released today is now forecasting that the 14 economies of emerging East Asia will grow by 4.2% this year and by 6.8% in 2010. That is higher than the 3.6% and 6.5% respectively forecast for the region in September's Asian Development Outlook 2009 Update.

Emerging East Asia comprises the 10 economies of the Association of Southeast Asian Nations plus the People's Republic of China (PRC); Hong Kong, China; Republic of Korea; and Taipei,China.

"Emerging East Asia is rebounding strongly and growth rates next year are likely to slightly outpace 2008 in most countries," said Jong-Wha Lee, ADB's Chief Economist and head of the Office of Regional Economic Integration which prepared the report.

In a separate special assessment, also released today, ADB raised its forecast for growth in developing Asia to 4.5% this year and 6.6% in 2010. Developing Asia comprises 45 member countries of the ADB.

Asia Economic Monitor noted that the pace of recovery is uneven across emerging East Asia, however. The newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, along with the more export-oriented economies of the Association of Southeast Asian Nations (ASEAN), were hit hard by the global financial crisis but are poised for a swifter recovery. The less open ASEAN economies were damaged much less by the global downturn and are not expected to post a major rebound in growth in 2010.

PRC's economy, which managed to maintain growth throughout the global financial crisis, is likely to grow faster in 2010 than in 2009, with the pace dependent on the speed of the global recovery. ADB is maintaining its forecasts for the PRC at 8.2% for this year and 8.9% in 2010.

"Despite the V-shaped recovery now underway, it's essential that fiscal and monetary stimulus remain accommodative where possible to put economies on a sound footing. A key challenge for each economy will be to carefully time when best to rollback the stimulus to ensure sustained recovery but avoid both excessive inflation and hefty fiscal shortfalls," said Mr. Lee.

Other risks to the outlook for the region include a short-lived recovery in developed economies, which are markets for many goods produced in emerging East Asia, a slower-than-expected recovery in private consumption in Asia and destabilizing capital flows. Investors have rushed back to Asia in recent months as global risk appetite has returned. However, this poses policy challenges for the region, potentially destabilizing the real economy and raising the threat of a sudden reversal of flows.

The region would benefit from greater cooperation to manage capital flows, enhance productivity, and ensure financial stability. Closer coordination on exchange rates, in particular, would boost cross-border investment and trade, the report said.

"By working more closely together, Asia can lay solid foundations for long-term economic expansion and ensure it plays a role in the reshaping of the global financial and economic architecture," Mr. Lee said.

ADB and the ASEAN Secretariat are currently setting up an interim surveillance body in advance of the creation of a permanent independent regional surveillance unit. The unit will monitor and analyze regional economies in support of the multilateralized Chiang Mai Initiative, a pool of Asian foreign reserves that can be used to support regional economies in difficulties.