Slower Growth For East Asia

Amid a struggling U.S. economy and European recovery doubts, East Asian growth may slow, says a new report.


China is expected to exit double digit economic growth next year while smaller Southeast Asian nations such as Vietnam, Burma, Laos, and Cambodia maintain moderate expansion, the Asian Development Bank (ADB) said in a new forecast Tuesday.

The bank also underlined inflationary concerns in the East Asian region and highlighted ballooning budget deficits in Vietnam, Cambodia, and Laos.  

Average economic growth for the region will slow in 2011 to 7.3 percent from 8.8 percent this year on the back of a struggling U.S. economy and doubts over the debt-stricken eurozone recovery, according to the latest edition of the ADB's twice-annual Asia Economic Monitor.

"Growth momentum may ease on weak domestic U.S. demand, uncertainty over the sovereign debt crisis in Europe, and deflationary pressures in Japan," it said.

In addition, a second round of massive U.S. government debt purchases by the Federal Reserve with freshly created money may help shore up the American recovery but could also increase risks of asset price bubbles and higher inflation in emerging East Asia, the Manila-based ADB warned.

In China, the Asian giant fueling global growth, economic expansion is expected to hit a better than expected 10.1 percent this year but will moderate to 9.1 percent in 2011 as property prices cool, stimulus is withdrawn, and exports slow down amid the weaker external environment, the bank said.

Smaller economies to grow

The smaller Southeast Asian economies should, however, see improved economic growth.

For example, Vietnam’s economy strengthened this year with third quarter growth outpacing first-half expansion, the ADB said.
The rebound in world trade and depreciation of the Vietnamese dong should help the economy grow 6.7 percent in 2010, it added.

Strong growth will continue into 2011, with growth forecast at 7.0 percent, according to the bank.

Cambodia’s economy is projected to rebound—following its 2009 contraction—as garment exports and tourism receipts recover, growing 5.0 percent in 2010 and further improving to 6.0 percent in 2011.

The ADB also said that the economy of Laos was expected to expand 7.4 percent in 2010 on increased investments in mining and hydropower—and on buoyant copper and gold prices.

In 2011, growth should remain robust at 7.5 percent, as electricity and mineral exports increase with new hydropower and mining projects, the bank said.

Burma's growth is also projected to rise marginally from 5.0 percent in 2010 to to 5.3 percent next year.

Inflationary pressures

Even as economic recovery in the region remains well entrenched, the bank warned that inflationary pressures were rising.

The situation however is "manageable," the bank said, citing the appreciation of most of the region's currencies against the U.S. dollar this year, except notably the Vietnamese dong, as a bulwark against imported inflation.

In China, inflation rose to 4.4 percent in October—the highest in two years—mainly due to higher food prices. Prices on the whole rose 4.0 percent in emerging East Asia in October, largely because of higher inflation in China, South Korea, and Singapore.

Vietnam posted the highest inflation rate in the region—11.1 percent in November.

Vietnam, Laos, and Cambodia were also cited by the ADB for their rising budget deficits—above 7.0 percent of Gross Domestic Product, the measure of a country's annual output.

"These countries may need some fiscal consolidation when economic conditions allow," the bank said.

Cambodia and Laos also suffered "worrying" double-digit current account deficits, the ADB said.

The deficits occurred mostly because imports of goods, services, and transfers were greater than the exports.

"In Laos and Vietnam, foreign reserve levels are somewhat low, covering about two months of imports," the ADB cautioned.

Reported by Parameswaran Ponnudurai.


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