East Asian economies face risks to recovery, development bank says

Jul 23, 2009, 5:52 GMT

   Manila - East Asian economies face great risks to their recoveries from the global economic crisis as recessions in the world's major economies could be longer than expected, the Asian Development Bank said Thursday.

   The Manila-based bank said that while East Asia has already entered the transition to recovery, deep recessions in the United States, Europe and Japan would continue to hurt the region, especially those economies that are highly reliant on exports.

   The bank said in its semi-annual Asia Economic Monitor report that East Asian economies 'could see a V-shaped recovery with growth dipping sharply in 2009 before regaining last year's pace in 2010.'

   'The risks to emerging East Asia's transition to recovery, while having dissipated somewhat over the past few months, remain firmly tilted on the downside,' the report said.

   'The recession in advanced economies could be much longer and recovery weaker than currently expected, exacerbating the external environment for emerging East Asia,' it added.

   East Asia covers the 10 members of the Association of South-East Asian Nations - Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Laos, Cambodia, Vietnam and Myanmar - plus China, Hong Kong, South Korea and Taiwan.

   The bank's report said aggregate gross domestic product (GDP) in the East Asian region was expected to grow 3 per cent in 2009, down from 6.1 per cent in 2008. Its GDP was projected to expand 6 per cent in 2010.

   It noted that policies implemented by East Asian governments and central banks to address the global economic crisis have stabilized financial markets and might be starting to rekindle growth.

   'As a result, there are some tentative signs of global and regional economies bottoming out,' it said. 'However, it remains far too early to say if these signs signal a recovery will be under way any time soon.'

   Given the tentative nature of the expected recovery, the bank said it was critical that authorities stay the course in supporting domestic demand and growth by ensuring that fiscal stimulus plans are implemented effectively and efficiently.

   It added that monetary policy in the region needs to remain expansionary until the recovery gains substantial traction or inflationary pressures re-emerge.

   'Even as the immediate impact of the global crisis works itself out, authorities should continue with deeper, more comprehensive structural reforms needed to rebalance growth toward greater domestic demand,' it said.