Developing Asia will maintain its growth momentum over the next couple of years despite weak global demand, according to the Asian Development Bank (ADB), which forecasts growth to ease to 6.9 percent in 2012 from last year’s 7.2 percent before reaccelerating to 7.3 percent in 2013.
“There is no clear case for policy makers in the region to pursue short-term fiscal or monetary stimulus,” the ADB said in its latest Asian Development Outlook report released on Wednesday, adding that the gap between “potential production” and the actual level of output in developing Asia is not large enough to warrant “aggressive” measures.
Developing Asia is made up of 45 countries in Central Asia, East Asia, South Asia, Southeast Asia and the Pacific.
Strong domestic demand will play a crucial role in supporting growth, the ADB added, in light of softer export demand from major economies such as the U.S., euro zone and Japan, which are collectively expected to grow by just 1.1 percent this year.
Inflationary pressures, which were seen as a pressing issue for developing Asia in 2011, are no longer viewed as an “immediate threat,” the report said. Consumer prices are expected to rise by 4.6 percent in 2012, down from 5.9 percent in 2011, helped by a slower rise in commodity costs.
Inflation in Asia’s biggest economy, China, has already shown signs of moderating from the high of 6.5 percent seen last July and analysts including Song Seng Wun, Regional Economist at CIMB Research, tell CNBC Beijing will likely meet its 2012 inflation target of 4 percent.
However, the ADB says volatile capital flows into Asia remain a concern. “Major industrial countries are likely to maintain accommodative monetary policies…and so policy makers will need to be prepared for potentially large swings in capital flows based on fluctuations in global investors’ risk appetites,” the ADB said.
Investment strategist Garry Evans from HSBCagrees that abundant liquidity from loose policies in developed economies could lead to “excessive funds” flowing into Asia, which could spur inflation.
“The danger is that easy monetary policy in developed markets and a pick up in risk appetite combine to fuel excessive fund inflows into emerging markets, and at some point re-ignite emerging market inflation,” Evans said.