(EnergyAsia, April 26 2012, Thursday) — Weak global demand will weigh on Asia’s developing economies in 2012 but growth rates in most economies remain robust and should tick back up in 2013 with private consumption providing support, the Asian Development Bank (ADB) said in its latest annual economic report.

In its Asian Development Outlook 2012 (ADO 2012), the bank has forecast Asia’s developing economies to grow by 6.9% in 2012 and 7.3% in 2013. GDP expanded by 7.2% in 2011 after growing 9.1% in 2010.

External trade was subdued in 2011, but domestic demand helped take up some of the slack, with the region’s current account surplus falling to 2.6% of GDP from 4% in 2010.

ADB said the region’s inflation is gradually easing, but remains a potential threat given volatility in food and fuel prices. A significant dip in investment late in 2011, and the possibility of growing unpredictability in foreign capital flows in and out of the region are other factors policymakers must be wary of.

The bank said East Asia will see slower growth of 7.4% this year compared with 8% in 2011, weighed down by weaker exports and investment. It expects China, the world’s second largest economy, to lead with growth at 8.5% and 8.7% for 2012 and 2013, down from 9.2% in 2011.

South Asia will also remain subdued with growth of 6.6% in 2012, tempered by weak demand and fiscal limitations. The pace of expansion will accelerate to 7.1% the following year, driven by the Indian economy, which is projected to rise to 7.5%, said the ADB.

Southeast Asia’s growth will quicken to 5.2% in 2012 from just 4.6% in 2011, thanks to the continued recovery in the Thai economy, which was damaged by floods last year.

Central Asia will see little change in economic activity for 2012, with projected growth of 6.1% reflecting the weak conditions in the eurozone and sluggish growth in the Russian Federation, said the bank.

It predicts growth in the Pacific will moderate to 6% in 2012 and 4.1% in 2013 as Papua New Guinea, the largest economy in the region, sees a winding down of infrastructure projects that stimulated growth in 2011.

Changyong Rhee, ADB’s chief economist, said:

“Continued uncertainties in the eurozone and a further slump in global trade pose the biggest threats to the growth outlook. At the same time, Asian economies are gradually diversifying into new markets, private consumption is trending up and the region has limited direct financial exposure to the eurozone which should help sustain its momentum.”

The bank said Asia must be ready to respond to any further major shocks in the eurozone which could stall an exports recovery, dry up trade finance or undermine key global supply chains. Most economies in the region have sharply improved finances in the wake of the 2008 global financial crisis and have the capacity to respond to further external weakness.

“There is no clear case for short-term policy responses, but if inflationary pressures build up again and capital inflows resume, there may be a need to readjust monetary policy to maintain price stability,” Mr Rhee said.

The bank said that longer term, policymakers will need to strike a balance between paying down debt while supporting growth that is both inclusive and environmentally sustainable.