Sluggish global economy - concern for Asia

Just three months after the Asian Development Bank issued its Asian Development Outlook Report 2012, the bank revised down growth estimates for major industrial economies in a supplementary report issued yesterday. The contagion effect on Asian economies was inevitable, with the ADB lowering growth forecasts for developing Asia from 6.9 percent in 2012 to 6.6 percent. China and India, two mega Asian economies are expected to slow down in the second half of 2012, bringing down growth prospects for the region as a whole. This economic deceleration in Asia is largely attributed to the harsh times facing the global economy these days, though economies have been at work trying to pump up growth through policy easing. Primarily, the difficult global environment will lead to a reduction in exports and dwindling investment flows, which will take a toll on economic growth in the Asian economies. The bank warns of how global concerns have been reflected in the widening trade deficit in the South Asian region in particular, which, despite healthy remittance inflows, has had to bear the blow of a depreciating currency, which further drove inflation up in the region. Declining of foreign investments has been highlighted as a major concern for Pakistan, though the bank mentions: "Based on the governments latest survey, however, real private consumption in Pakistan is expected to grow in FY2012 by a significantly higher rate than in FY2011, supported by inward remittances." As for India, the largest economy in the South-Asian region, increasing public debt, strong inflationary pressures and high trade deficits continue to raise concerns over the strength of the economy. Going forward, inflation is expected to mellow down for developing Asia, though it is expected to be slightly higher for South Asia. Declining commodity prices, food and oil to be precise, are believed to tame down inflationary pressures to some extent, as well as the overall slowing global economic growth. For developing Asia, in general, and South Asia in particular, the ADB outlook supplement comes as a word of warning about the times to come. Efforts need to be made to curb down inflationary pressures arising from government spending and the lack of fiscal discipline, since other areas of the economy, such as exports and investments, appear to be ailing in the coming months and year. Something needs to be done before the currencies start taking the brunt of the sickly external economy and a proactive approach is the order of the day.

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ADB GDP GROWTH RATE ESTIMATES
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                      2012                 2013
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              Previous   Revised   Previous   Revised
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US                 2.0       1.9        2.3       2.2
Euro area         -0.5      -0.7        1.0       0.8
Japan              1.9       2.2        1.5       1.5
Developing Asia    6.9       6.6        7.3       7.1
South Asia         6.6       6.2        7.1       6.9
India              7.0       6.5        7.5       7.3
China              8.5       8.2        8.7       8.5
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Source: ADB Asian Development Outlook Supplement 2012
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