ADB cuts growth forecasts for PH, East Asia

Posted at 12/07/11 8:50 AM

MANILA, Philippines - The Asian Development Bank (ADB) has revised downward its growth forecasts for the Philippines and East Asia as economic concerns continue to hound the US and Europe.

From a 4.7-percent gross domestic product (GDP) growth in 2011, the Manila-based multilateral lender has cut its forecast for the Philippines to 3.7 percent. Likewise, from its 5.1 percent in 2012, the growth outlook was downgraded to 4.8 percent.

“If the eurozone and US were to fall into a deep recession next year, the special section (of the ADB report) suggests Philippine growth next year could be 0.6 percentage point lower than currently expected, falling to 4.2 percent,” it added.

The ADB cited external factors weighed in on the revised outlook, as the country’s economy remains stable albeit slightly weaker than the previous year.

Also, the country’s financial system is strong as seen as expanding bank lending, similar to Indonesia, Malaysia and Vietnam. Lending to the property sector is moving forward, with 2011 poised to surpass the levels of the previous two years.

In its latest Asia Economic Monitor (AEM), the ADB also said that economic growth in emerging East Asia will continue to moderate into 2012 as growing sovereign debt problems in Europe and an anemic US economy raise the spectre of a deep global economic downturn.

The semi-annual report released yesterday assesses the 10 ASEAN economies – Brunei Darussalam; Cambodia; Indonesia; Laos PDR; Malaysia; Myanmar; Philippines; Singapore; Thailand; and Viet Nam – as well as those of the People’s Republic of China (PRC); Hong Kong, China; the Republic of Korea; and Taiwan.

In a separate statement, the ADB’s Office of Regional Economic Integration head Iwan J. Azis said the turmoil emanating from Europe poses a growing danger to trade and finance within emerging East Asia.

“The region’s policymakers must be prepared to act promptly, decisively, and collectively to counter what could be an extended global economic slowdown,” Azis added.

ADB cut its forecast for the region’s growth in 2012 to 7.2 percent from the earlier 7.5 forecast. Growth is still forecast at 7.5 percent for this year.

The report describes the events that could lead to a recession in the eurozone and a new economic downturn in the US. It examines how a new global economic crisis would affect the region under differing scenarios.

In the worst case scenario – with the eurozone and US contracting as much as they did in 2009 – emerging East Asia would grow by 5.4 percent next year. That would be 1.8 percentage points below the current forecast but not as severe as the impact of the 2008/09 global financial crisis.

“This is due in part to diversification of the region’s export markets and increased domestic demand as a source of growth,” the ADB report added.

The report note that heightened risk aversion would see investors slash holdings of Asian financial assets while highly leveraged European banks would cut lending, leading to tighter credit conditions.

To cope with a potentially prolonged global crisis and a slow subsequent recovery, Asia’s policymakers can use available financial, monetary, and fiscal tools. These include mechanisms in place to safeguard financial stability and ensure sufficient credit is available regionally, the ADB said.

Monetary policy must remain flexible while exchange rate coordination would avoid competitive devaluations. And the region still has sufficient fiscal space to apply stimulus gradually and judiciously where needed while avoiding too much budgetary strain.