Global slump drags on Asian growth outlook

THE ASIAN Development Bank (ADB) cut most of its 2012 and 2013 growth estimates for developing Asia yesterday as a slump in global demand weighs on the region’s powerhouses China and India and on its other export-dependent economies.

The ADB cut its gross domestic product growth estimate for China by almost 1 percentage point to 7.7 percent from the previous 8.5 percent, warning that risks to the economy were likely to intensify in the short run given the bleak global demand and the uncertain outlook for its largest trading partners.

But it believed China would still be able to avoid a hard economic landing, given that policymakers in Beijing had considerable scope for further stimulus measures.

“The global slump in demand… will remain a serious drag on growth in the near term,” ADB chief economist Changyong Rhee said as the bank released an update of its regional outlook.

“The government has the means to cushion the economy from global turmoil… Its strong fiscal position, receding inflation and expansionary policy measures should ensure a soft economic landing, but it needs to expedite its effort to diversify the source of growth and strengthen structural reforms for inclusive growth.“

Highlighting the extent of China’s slowdown, an official survey also released yesterday indicated its normally robust services sector lost momentum in September, with a key activity index falling to near two-year lows, as slow growth in manufacturing began to feed through to the rest of the economy.

The euro zone’s unresolved sovereign debt crisis and the US’s looming fiscal cliff were the biggest risks to regional growth, with Asia’s most open economies particularly vulnerable to spillover effects, the ADB warned.

The risk of rapid reversals in capital flows to developing Asia also remained a concern, although the region’s capital markets had not shown excessive volatility, it added.

Still, most countries in the region had enough room to use monetary and fiscal policy tools if necessary to protect domestic growth, with inflation expected to be slower than earlier anticipated this year and the next, the development bank said. The biggest oil operator in South Sudan, Dar Petroleum Operating Company, said yesterday it would take over four months for its crude oil to reach an export terminal once production resumed under deals signed last week with neighbour Sudan. Landlocked South Sudan signed border and trade agreements at a summit with Sudan that will allow it to resume oil exports through Sudan’s pipelines after an eight-month shutdown. Chinese-Malaysian consortium Dar said that it would initially aim for a production of 180 000 barrels a day. – Reuters