Rising private consumption and stronger intra-regional trade will spur growth in developing Asia in 2013 and 2014, even as economic activity in the US and Europe remains in the doldrums, the Asian Development Bank (ADB) says in a new report.
The multilateral funding agency said India's growth rate would improve to 6 per cent in the current fiscal on the back of stronger external demand and progress on reforms. But more reforms would be needed to facilitate a turnaround from growth deceleration due to structural bottlenecks, deteriorating investment and a worsening current account deficit the agency said in its 'Asian Development Outlook 2013' report.
ADB's flagship annual economic publication, Asian Development Outlook 2013 (ADO 2013), released today, forecasts gross domestic product (GDP) growth in developing Asia of 6.6 per cent in 2013 and 6.7 per cent in 2014. In 2012, the region grew 6.1 per cent.
''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.''
The report, however, warns that political risks linked to wrangling over the US debt ceiling, fatigue over tough austerity measures in the euro zone, and long simmering tensions over border disputes in Asia present the main threats to the near term outlook.
The report also notes that the region's favorable fiscal position cannot be taken for granted as with improved revenue efficiency, better governance, and other longer-term structural issues needed to be addressed.
The report projects stronger economic activity spurring renewed price pressures, with inflation seen moving up from 3.7 per cent in 2012 to 4.0 per cent in 2013 and further to 4.2 per cent 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,'' the report said.
Across the sub regions, East Asia will set the pace with the highest projected growth of 7.1% in 2013 and the same in 2014.
China, the world's second largest economy, is forecast to expand 8.2 per cent 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 per cent 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 per cent in 2013 and 6.2 per cent in 2014. India will lead the upturn, with projected growth of 6.0 per cent and 6.5 per cent, but the world's second most populous country is still struggling to realise its full potential, with structural and policy issues inhibiting investment, the report pointed out.
Southeast Asia was the only sub-region 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 intra-regional trade, with GDP growth projected at 5.4 per cent in 2013 and 5.7 per cent 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 per cent in 2013 and 6.0 per cent in 2014.
The region, however, needs to put up safeguards against the buildup of asset bubbles and possible withdrawal of huge liquidity that has spilled over to the region following monetary policy stimulus in developed economies, the report says, adding that macroprudential policy must be reinforced when necessary.