ADB sees Asia recovery in 12 to 18 months

ADB sees Asia recovery in 12 to 18 months


NEW DELHI

Tuesday, November 18, 2008

China, India seen to drive Asia growth, a renewed Asia will drive global growth

ASIA will start to recover from the global downturn in a year to a year and a half and some of its economies have room for fiscal stimulus to boost consumption, a top official at the Asian Development Bank said.

Rajat Nag, managing director general at the ADB, told Reuters in an interview yesterday that "next year would be a difficult year for Asia, but there is no need to be unduly pessimistic.

"The recovery in the US and Europe will certainly take time but in Asia we think it's about four to six quarters (12 to 18 months) that we should start seeing it coming back up again," Nag said.

ADB President Haruhiko Kuroda said earlier this month aggregate economic growth for developing Asia would decline by 1.5 percentage points this year from a record 9.0 per cent in 2007 and decelerate a further 0.5 or 1.0 per cent next year.

Nag said India would grow 7.8 per cent this calendar year and 6.3 to 6.5 per cent next year, well below the nine per cent annual rate seen in the past few years.

"But at the same time it's very important to remember that China and India will grow at fairly healthy clips.

"As a matter of fact, China and India will drive Asia's growth and Asia will drive global growth," he said.

Asia's financial sector was resilient, but he warned the financial crisis could see significant lay-offs in India.

Group of 20 leaders from major industrialised and developing nations called at the weekend for fiscal stimulus measures, either tax cuts or government spending, to boost the world economy and Nag said a coordinated response was appropriate.

"Coordinated does not mean identical and it cannot be," he said. "But overall Asia has room for greater fiscal stimulation. We can certainly push up our domestic consumption."

Beijing launched a stimulus package worth nearly US$600 billion ($900 billion) earlier this month which Nag said would boost not just China's economy but also Asia and the world.

But India had little room for fiscal stimulus, with a state and federal fiscal deficit of seven per cent, and it should instead implement projects which had already been approved, he said.

Malaysia and Singapore had room for fiscal stimulus but Vietnam and Pakistan didn't, while Indonesia had some scope.

He ruled out a sovereign bond issue by India to raise funds.

"At this time of a crisis it's probably prudent not to try something new. We've got enough options on the menu, let's just implement those."

The ADB stood ready to provide financing needs for infrastructure projects in the region but was also seeking to raise its capital, he said.

It has said it urgently needs a capital increase from its 67 member states to cope with rising demand for loans due to the financial crisis, and this should happen at the latest by 2010.

"We will be as responsive as the situation demands because it will vary from country to country," Nag said.

"But at the same time we are also talking with our shareholders that we need a capital increase to provide more assistance."

Reuters