ADB slashes regional growth prospects

As the ongoing sovereign debt crisis in Europe and the imminent fiscal cliff looming over the US weigh heavily on world economy, the clouds engulfing global growth prospects continue to darken.
And while the advanced industrial economies of the world continue to flounder- with American, European and Japanese economies collectively slated to grow by a meager ine percent this year- Asias growth is also expected to peter out more rapidly than previously predicted.
In an update to the Asian Development Outlook 2012, ADB reports a substantial cooling down of Asias growth prospects. Citing the decelerating growth momentum in the regions two largest economies as one of the major reason behind the weakening optimism, the bank projects the regions GDP expansion at 6.1 percent in 2012, down substantially from 7.2 percent in 2011.
With weak demand at home and stagnating investments dragging it down, Chinas economy is expected to grow by 7.7 percent in 2012 down from 9.3 percent witnessed in 2011, which is expected to have a compounded effect on East Asias export-oriented economies by slowing demand for intra-regional exports.
Similarly, Indias struggle with an insurmountable fiscal deficit and persistently high inflation will see its GDP growth slow to 5.6 percent in 2012.
The only silver lining however comes with the news that the sluggish growth prospects projected are likely to keep price pressures in check. While the surge in prices for food commodities remains a concern late into 2012, the average inflation in developing Asia is projected to remain moderate; staying reigned in at 4.2 percent in both 2012 and 2013, which is an improvement over last years 5.9 percent.
Scaling back on the previous estimates for both 2012 and 2013, the update warns that after a heady period of rapid expansion, the region must therefore brace itself for a drawn-out period of moderate growth which will require countries to cut back on their myopic focus on exports, re-organise their growth drivers and work on increasing productivity and efficiency.
A key challenge in this regard will be focusing on service sector development, which can play a pivotal role in the process.
Although the expanding service sector already contributed to nearly half of the regions GDP in 2010, its role will "broaden further as regional economies that have graduated from agriculture to industry evolve further into service economies" states the report.
With the regions rapidly expanding middle class, the challenge therefore will be to develop a vibrant service sector which moves beyond the current traditional low-productivity services and offers high value modern services such as information and communication technology, finance, and professional business services.
However, the persistent lack of human capital and inadequate infrastructure available in the developing Asian region remain a major road-block in the development of a modern service sector. It is essential therefore that investment in services-relevant infrastructure is bolstered up to stimulate inclusive growth on a regional level.

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ADO GDP Growth Update

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Sub-region               2012      2013

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Central Asia              5.7         6

East Asia                 6.5       7.1

South Asia                5.5       6.4

Southeast Asia            5.2       5.5

The Pacific                 6       4.2

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Country                  2012      2013

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PRC                       7.7       8.1

India                     5.6       6.7

Pakistan                  3.7       3.7

Bangladesh                6.3         6

Indonesia                 6.3       6.6

Malaysia                  4.6       4.8

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