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Asia awaits lucky thirteen

Asia suffered a marked slowdown in 2012 amidst continuing global economic uncertainties and their spillovers in trade and finance, but a modest growth upturn is projected for the region, led by China and India, in 2013. Its resilience notwithstanding, developing Asia’s growth had sharply declined to 6 per cent in 2012 from 7.2 per cent in 2011, according to revised down estimates by the Asian Development Bank (ADB). Growth in 2013 is expected to be 6.6 per cent.

Even the scaled down assumptions are based on recession-hit euro-zone riding out its debt-related problems in the coming months and the United States striking a deal with the Congress to avert the fiscal cliff in the New Year, when tax increases and spending cuts are due to come into effect, potentially landing the world’s largest economy in another recession. Both IMF and ADB have cautioned against the downside risks for all economies over the medium term in a highly uncertain global environment.

Emerging market economies, IMF noted, had to operate in a world of high government debt, which would tax their ability ‘to maintain strong expansion while shifting further from external to domestic sources of growth.’ Both China and India, global growth drivers, had suffered growth declines in 2012, though still providing some ballast to the world economy. According to latest data, China’s economy bottomed out in the last quarter (October-December) with a rebound in industrial production on the back of increased infrastructure investment. Coupled with exports, though lower due to drop in external demand, China’s growth in 2012 is now officially projected at 7.7 per cent and seen to be rising to 8.1 per cent next year.

While growth moderated over much of Asia, the weakening of import demand in most advanced economies apparently led to the deceleration in the region’s export growth. Global trade has also registered a sharp decline to below 4 per cent in 2012 and is expected to pick up to 4.6 per cent in 2013. India’s exports have taken a severe hit in the first eight months of 2012-13.

For India, ADB Outlook Supplement of December 2012 has projected a slow recovery of the ‘sluggish’ economy, which has seen sliding industrial production and declining exports. It expects India’s growth at only 5.4 per cent in fiscal 2013 and 6.5 per cent in fiscal 2013. ‘Anemic industrial production as well as consumption and investment point to sluggish growth in the coming quarters’.

The industrial contraction is reflected in GDP growth dipping to 5.3 per cent in the second quarter (July-September). There are no visible signs yet of a pick-up in the third quarter (October-December).

Earlier, the IMF also lowered its India projection to 5-6 per cent growth in 2012 and 2013 stating that the growth downgrade reflected the expectation that current drags on business sentiment and investment would persist. ADB points to growth in private consumption expenditure being one of the lowest in recent years. With weak agricultural income keeping rural consumption low and fragile investment sentiment in the coming quarters, ADB has revised down growth rates and says the high deficit and inflation coupled with weak capital flows would make it difficult for the government to cut lending rates to boost the economy.

In South Asia, the uncertain global environment and tight monetary policies adopted to combat domestic inflation continue to pressurise South Asian economies, according to ADB. Moreover, the late and uneven monsoon will hurt agricultural production in India and Nepal. In Bangladesh, the growth projection for FY2013 has been revised downward due to decelerating export growth and domestic demand has remained anemic. The sub-region is now expected to grow more slowly, at 5.3 per cent in 2012 and 6.2 per cent in 2013. Leading South East Asian economies have performed better with strong domestic demand (Malaysia), services supported by sustained growth in industrial output along with private consumption and investment in construction (Philippines) and an emerging fourth quarter rebound in Thailand. The surging economies of Southeast Asia have been a ‘bright spot’ in an otherwise subdued 2012 growth performance in developing Asia, ADB noted. Top five ASEAN economies (including Indonesia and Singapore) would record growth close to 6 per cent in 2012 and 5.8 per cent in 2013.

Unlike other sub-regions, inflationary pressures remain a concern in South Asia, which is expected to post an annual inflation rate of 8.3 per cent in 2012. The international food price situation is expected to ease inflationary pressures in some economies in developing Asia, most notably the PRC and Central Asia. While inflation in developing Asia would tick up to 4.2 per cent in 2013, from a revised rate of 4.0 per cent in 2012, for India, ADB expects inflation to remain at 7.9 per cent in current year and moderate to 7 per cent in 2013.

Politically, 2012 marked the transition to a new leadership in China for the next decade with Xi Jinping due to take over from President Hu Jintao early in 2013. Xi, who is already elected as the new General Secretary of the Communist Party of China, has spoken of continuing the reform process with further opening-up but focus would be on stabilising China’s growth to make it sustainable and ‘revival of the Chinese nation in modern times’.  The Chinese leaders remain committed to a structural transformation with continued emphasis on investment but greater reliance on domestic demand. China has limited its growth ambitions to 8 per cent on an average.

In whatever way, an increasingly assertive China with a new leadership plays its key role in regional and global affairs as the world’s second largest economy, it is expected to continue maintaining broadly a co-operative relationship with the United States while being jealous about the latter’s ‘pivot’ in Asia-Pacific, especially in the context of the disputes with several of its Asian neighbours over its sovereignty claims for the South.

2012 also saw greater convergence among Asian economies with the strengthening of the East Asian Community sponsored by the 10-nation ASEAN, with the participation of USA and Russia besides China, Japan, Korea, India, Australia and New Zealand.  (IPA)
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