ADB: Asia seems to be on the mend

The economies of Asian countries appear to have survived the worst of the worldwide recession and are expected to double this year’s weak growth rates next year, said the Asian Development Bank (ADB) yesterday. However, the Asia Economic Monitor warns that the way to a total recovery is hazardous.

The largest threat to progressing recovery determined by the report of ADB is the risk that recession in Europe and in the US, on which Asia depends heavily for exports, will last for more than generally expected.

The GDP growth rate of Singapore is estimated by the ADB report to make 3.5% in 2010, following an expected entire contraction of 5% this year. Other Asean members should make progress from the 0.7% marginal growth this year to 4.2% expansion in 2010.

China still remains as the region's major performer, with growth estimated to be kept at a comparatively high 7% this year, increasing to 8% in 2010. However, Japan is expected to experience a 5.8% GDP decrease this year and will recover with only 1.1% growth in 2010.

Hong Kong and South Korea are estimated to recover to several growth rates of 4% and 3% in 2010 following a quick reduction this year; however Taiwan will continue to be a laggard of the region with only to 2.4% growth recovery next year.

The ADB report said that during the Q2, Asia’s recovery will still be in progress, provided largely by economic and financial stimulus programmes. However, while exports recover as a product of inventory adjustment, motivating external demand still remains weak.

Asia’s positive signs are ‘early indicators that the pace (of economic contraction) slowed in the second quarter of 2009’, as the equilibrium of payments positions 'turned positive’ once more, stock markets have recovered, various currencies started appreciating, and price increased has eased.

Meanwhile, according to ADB, the banking systems of the region appear to be capable of conditioning the economic storm, with strong prudential indicators and lending continues to grow across the region.

Regardless of the positive indications, the ADB report says that ”The overall external environment for emerging East Asia remains difficult and uncertain, with the recession in advanced economies continuing and global financial conditions improving (but) still tight”.

Emerging East Asia, excluding Japan as well as the NIEs or newly-industrialised economies (NIEs) of Taiwan, Hong Kong, Singapore, and South Korea, can perceive a V-shaped upturn, with growth sharply going down in 2009 prior to improving  next year to its rate in 2008.

However, this scenario can become worse if there will be a prolonged recession in higher economies, with demand of exports remain depressed much longer than it is expected. Premature economic or financial tightening can also harm the forecast for the V-shaped fiscal recovery in Asia.

The report stated that falling inflation can also turn into depression in several economies in the region, noting that Taiwan and Singapore, whose economies have decreased sharply among the newly-industrialised economies in the present recession, were undergoing deflation for the past months.

Given the temporary nature of the anticipated recovery, “it is critical that authorities stay the course in supporting domestic demand and growth” through economic and financial stimuli, the report adds.