The Asian Development Bank (ADB) raised its estimate of average growth in developing Asian economies to 3.9 per cent in 2009 from a forecast of 3.4 per cent made in March, while also raising the 2010 forecast to 6.4 per cent from 6.0 per cent.

The Manila-based multilateral bank said on Tuesday that Asia has proved to be more resilient than expected to the global financial crisis with economic growth rebounding after governments adopted supportive monetary and fiscal policies.

But it stressed a regional recovery was not yet on solid footing, and said policymakers risked derailing growth if they withdraw stimulus policies too early.

'Underpinning the resurgence was the impetus to demand from expansionary fiscal and monetary actions taken by governments throughout the region, especially China and India,' the ADB said in its updated annual outlook, adding that Indonesia and Vietnam also saw solid economic growth.

'Tax cuts, greater public spending, targeted assistance and easy monetary policies boosted consumption and investment.'

The ADB said growth in China in 2009 should come in at 8.2 per cent, up from its March forecast of 7.0 per cent. Growth should surge to 8.9 per cent in 2010, it said.

Many Asian economies have pinned their hopes on a strong rebound in China amid persistently weak consumer demand in US and European export markets.

For India, growth was projected at 6.0 per cent this year and 7.0 per cent next year, up from the previous forecasts of 5.0 per cent and 6.5 per cent, respectively.
'In short, the 2010 outlook is for growth to come back strongly relative to 2009, giving a V-shaped trajectory to developing Asia's recovery from the world recession,' it said.

Nevertheless, the forecast 2009 growth will still be the lowest since 1998, at the time of the Asian financial crisis.

'Developing Asia will only be able to regain a high-growth trajectory if the global economy is growing closer to its potential,' the ADB said.

'With external demand from the main industrial countries still relatively weak, it will be difficult for developing Asia to return to the high growth rates of 2006/7.'

Inflation, monetary policy

The ADB said the resumption of growth had taken place against a backdrop of low inflation or even mild deflation. Its forecast for average inflation across the region is 1.5 per cent for 2009, from its previous forecast of 2.4 per cent.

It said the threat of inflation remained muted, although it was likely to tick up to 3.4 per cent in 2010.

'This is not the time for an exit from expansionary policies -- the recovery remains fragile and subject to serious downside risks,' the ADB said, referring to massive amounts of stimulus that many countries introduced during the global crisis.

'Pulling away the carpet of fiscal and monetary support before the recovery has a firm foothold may lead to a double-dip decline instead of the expected V-shaped rebound.

However, it added: 'Central bankers in the region will want to put a tight watch on monetary policies so as not to encourage asset bubbles that would inflate prices to levels that are no longer justified by fundamentals.' – Reuters