East Asia head­ing for eco­nomic slow­down, warns ADB

The Pak Banker - - International3 -

HONG KONG: East Asia will post slower growth next year due to a wob­bly US re­cov­ery, the Asian Devel­op­ment Bank (ADB) warned Tues­day, adding that greater ex­change rate co­op­er­a­tion could help safe­guard the re­gion.

The frag­ile US econ­omy and phas­ing out of eco­nomic stim­u­lus has weak­ened the out­look for East Asia, with growth ex­pected to shrink to 7.3 per­cent in 2011, down from 8.8 per­cent this year, the Mani­l­abased bank said in its twicean­nual Asia Eco­nomic Monitor.

De­spite bounc­ing back from the global fi­nan­cial cri­sis, East Asia's eco­nomic pic­ture re­mains "highly un­cer­tain", the ADB said, warn­ing that "se­vere eco­nomic dam­age caused by the Great Re­ces­sion will take a long time to heal."

"High un­em­ploy­ment could be­come en­trenched and last for many years," it added.

"Growth in pro­duc­tiv­ity could also suf­fer as cap­i­tal in­vest­ment plum­meted dur­ing the cri­sis and has not re­turned to pre-cri­sis trend growth."

Emerg­ing East Asia may need to erect "tem­po­rary" cap­i­tal con­trols to bat­tle a surge of hot money flow­ing into the re­gion that risks in­creas­ing "eco­nomic dis­tor­tions and low­er­ing long-term growth prospects," the re­port said.

Crit­ics have warned that the US Fed­eral Re­serve's 600bil­lion US dol­lar fis­cal stim­u­lus pack­age could un­leash a flood of spec­u­la­tive funds into the re­gion.

With the ex­cep­tion of Viet­nam, East Asia's cur­ren­cies have been surg­ing in 2010, a sit­u­a­tion that "will not help" ef­forts to fo­cus on in­tra-re­gional trade in re­sponse to sag­ging de­mand in the West, said Iwan Azis, head of the ADB's of­fice of re­gional eco­nomic in­te­gra­tion.

"The worst case sce­nario is there will be a cur­rency war and a trade war, but I don't as­sign a high prob­a­bil­ity to that," Azis told a press brief­ing in Hong Kong. But with­out cur­rency co­op­er­a­tion "in­trare­gional trade will not be as good as it could be," he added. Azis said greater cur­rency co­op­er­a­tion could also lower the tem­per­a­ture of sim­mer­ing cur­rency spats with the United States and other crit­ics, who have ac­cused China of ar­ti­fi­cially un­der­valu­ing the yuan to boost ex­ports.

China's will­ing­ness to let the yuan rise in value "will be crit­i­cal," Azis added.

"There is room for ev­ery sin­gle coun­try (in the re­gion), not just China, to ap­pre­ci­ate more," he said. He stopped short of call­ing for a euro-style cur­rency union, say­ing that any re­gional co­op­er­a­tion "is not go­ing to be like Europe".

Re­gional in­fla­tion re­mained mod­er­ate, but "pol­i­cy­mak­ers need to be alert to the dangers of higher in­fla­tion," the bank said in a note Tues­day.

The main ADB re­port said East Asia's emerg­ing economies saw a "ro­bust re­cov­ery" in 2010, with many of the re­gion's stock mar­kets bounc­ing back sharply. -Ap

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