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ADB to revise up 2010 Asia GDP forecast to above 7%

The Asian Development Bank plans to revise upward its 2010 economic growth forecast for developing Asia to around 7 percent, citing the ability of some nations to quickly employ massive stimulus measures.

New York: The Asian Development Bank plans to revise upward its 2010 economic growth forecast for developing Asia to around 7 percent, citing the ability of some nations to quickly employ massive stimulus measures, the bank`s top official said on Tuesday.

ADB President Haruhiko Kuroda told a news agency ahead of a speech at the Japan Society that rapid use of monetary and fiscal stimulus measures in developing Asia have led to signs of a "v-shaped recovery".

In September the ADB forecast developing Asia`s economic growth in 2010 would be 6.4 percent only to revise it up to 6.6 percent by December. The initial 2010 estimate was 6.0 percent.

"I think it is quite clear further upward adjustment will be made. I cannot say any concrete figures but maybe I should say around 7 percent," Kuroda said of a revised forecast the ADB expects to release in a report due in April.

Developing Asia`s GDP fell to 5 percent last year from 9.5 percent in 2007.

Kuroda, Japan`s former top financial diplomat, said the rapid turnaround in growth in countries such as China, India and to a certain degree Indonesia, with their capacity to support public spending and personal consumption allowed them to withstand the sharp fall in external demand for exports.

"As far as developing Asia is concerned, the recovery is firmly established. This year and next year it will grow very rapidly," Kuroda said.

Exit Strategies

The challenge will be to sustain that pace of recovery, and rolling back stimulus measures at the same time remains a difficult balancing act, he said.

"Timing may vary from country to country, but, generally, we believe that authorities in the region should maintain accommodative policies for now," Kuroda said.

"At some stage they have to exit. As far as fiscal policy is concerned probably in many countries they will continue to implement very stimulative policy measures to the end of this year. But next year maybe at some stage some of them may start exiting from fiscal stimulus measures," he said.

Asia`s export-led economic model however faces the challenge of no longer having a willing consumer of its exports as the developing world slows its spending and increases savings as a result of the financial crisis.

Kuroda advocated the region bolster domestic demand and develop financial sectors by relaxing borrowing constraints, removing barriers to interregional trade and regional cooperation.

The financial crisis only accelerates the pace of change toward interregional consumption rather than exports to North America or Europe.

Japan, the second largest economy in the world which will likely soon be surpassed by China, must deal with the strains an aging population has on economic growth as well as years of accumulated debt. It is also struggling to overcome deflationary pressures.

Looking ahead, Kuroda said he was not concerned about inflation in the region, citing excess production capacity in China as one reason not to expect rising prices.

The story was not the same for India, he said.

"The Indian economy shows very strong recovery and at the same time, as you know, whenever growth rate rises the Indian economy tends to have some sort of bottleneck in infrastructure or production capacity. So if this strong recovery trend continues, India may face inflationary pressures rising," he said.

ADB spending

The multilateral development bank, headquartered in Manila with 67 members, made aid commitments of USD 16 billion in 2009, Kuroda said, revealing the figure for the first time. He said the forecast for 2010 aid commitments will be slightly less, in the USD 13-14 billion range.

"Last year and this year are crisis response (years) and USD 16 billion or USD 14 billion lending levels cannot be sustained indefinitely," Kuroda said.

"After this year, from next year, our lending will gradually decline to a rate of USD 10-11 billion in OCR (ordinary capital resource) lending," Kuroda said.

Bureau Report


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