Friday January 27, 2012

ADB: Asia to power world economy this year

DAVOS: The global economic slowdown will affect Asia this year but the region will remain the economic powerhouse of the world, led by China, India and Indonesia, the head of the Asian Development Bank (ADB) said.

Haruhiko Kuroda said in an interview with The Associated Press that the bank expected Asian economies – excluding Japan, Australia and New Zealand – to grow by around 7% this year, down from about 7.5% in 2011 and 9% in 2010.

His slightly less rosy forecast was in sharp contrast to the gloomy International Monetary Fund announcement on Tuesday that it was cutting its forecast for global economic growth this year to 3.3% from 4% because of a slowdown in the world economy and the likelihood of a mild recession in Europe.

Kuroda said regional and domestic demand in Asia was still “fairly robust” though external demand was lower “so GDP (gross domestic product) growth as a whole is also slowing.”

He said Asia had already been affected by the ongoing European financial crisis in two ways – through the withdrawal of credit in Asia by many European banks and financial institutions, and a drop in trade, which would impact China because Europe was its largest export market.

“If the situation further deteriorates seriously, that could affect Asia,” Kuroda said. “So I really hope that the European financial crisis can be overcome.”

Nonetheless, Kuroda predicted that China would continue to lead Asia’s growth in 2012, expanding its economy by more than 8%, followed by India at between 7% and 8% and Indonesia at around 6.5%.

The ADB had 48 members and while most developing countries had a strong financial sector and reasonably good public sector, some had serious fiscal deficits like Pakistan, where huge floods had devastated the economy, he said.

It has experienced double-digit inflation in the last two years and growth of only about 3%.

The ADB had been providing loans and grants, totalling US$17bil in 2011, to nearly 40 developing countries including Pakistan, 14 Pacific island countries with economic growth rates of about 3%–4%, as well as Vietnam, Laos, Cambodia, Nepal, Bangladesh, Afghanistan and others, he said.

Despite “extreme difficulties”, Kuroda said, “Afghanistan has made significant progress.”

“The average growth rate in the last 10 years or so in Afghanistan has been around 9%,” spurred by major assistance from the United States, European Union, Japan and the ADB, he said.

With foreign forces scheduled to complete their pullout in 2014, he said, “economic aid must be increased so as to maintain the momentum of economic growth, of social development, and the momentum of democracy in Afghanistan.”

“It’s not easy but I am hopeful that the international community will continue to assist Afghanistan,” Kuroda said. — AP

As for his native Japan, the ADB chief said two things could affect the economy in coming years: the exchange rate and electricity costs.

The yen was very strong and high exchange rates affected the Japanese manufacturing sector, he said. “Hopefully in coming months the yen could more or less stabilise,” he said.

Last year’s earthquake and tsunami created power shortages and electricity costs went up “and are likely to rise further”, which could also affect the Japanese manufacturing sector, Kuroda said. — AP

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Friday January 27, 2012

ADB: Asia to power world economy this year