Emerging East Asia's economic momentum remains robust, but the region faces greater risks than just three months ago as Europe's debt problems and a fragile US economy could worsen into another global crisis, the Asian Development Bank said. The region - the ASEAN economies plus China, Hong Kong, South Korea and Taiwan - is expected to grow 7.2 percent next year after growth of 7.5 percent this year, the ADB said in its Asian Economic Monitor on Tuesday.
The 2012 forecast for the region has been cut from a forecast of 7.5 percent in September, with China's forecast for 2102 lowered to 8.8 percent from 9.1 percent. And while inflation looks to have peaked, it remained a concern for some countries, which could complicate policymakers' efforts to stimulate activity if global conditions worsened.
"The cautiously optimistic outlook for emerging East Asia is subject to much greater downside risks now than just a few months ago," the bank said. It listed the main risks as deep recessions in Europe and the United States, protectionism or policies that disrupt trade finance, destabilising capital flows and persistent or resurgent inflation. For the base-case scenario, the region was expected to grow close to its 2001-2010 average of 7.4 percent.
Growth in the Philippines, Thailand, Vietnam and South Korea would pick up pace in 2012 from 2011, while it would be essentially the same pace in Indonesia and Malaysia. Growth would slow in Hong Kong, Singapore and Taiwan. The ADB said its economic modelling of three scenarios for a new global crisis - a recession in the eurozone; a recession in the United States and a deep eurozone recession; and a drop in European and US GDP to 2009 levels - showed less of an impact on the region than the 2008/09 crisis.
The two city economies - Hong Kong and Singapore - would be worst affected by recessions elsewhere, as would those with large trade exposure to Europe, such as China and Taiwan. A global crisis would increase risk aversion and capital outflows and see credit conditions tighten, while the fiscal and monetary response to the 2007/08 crisis meant policymakers had less room to stimulate economies.
The ADB said the region's banking systems were sound, and external vulnerabilities appeared to be lower than in 2007. As well, the region had lessened its dependence on export markets in Europe and the United States, and its fiscal position was stronger. "This time around, however, any new global financial crisis would likely last longer - as weaker fiscal conditions in the eurozone and US limit their capacity to rescue financial systems."
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