LEAD: Development bank cuts growth forecast for East Asia in 2012

Dec 6, 2011, 10:21 GMT

Manila - The Asian Development Bank (ADB) on Tuesday downgraded its growth forecast for emerging East Asia next year amid a worsening euro debt crisis and a fragile US economy.

The Manila-based ADB said East Asia's economy was now expected to expand at a slower rate of 7.2 per cent in 2012, down from its September forecast of 7.5 per cent.

Growth in 2011 is still predicted to be 7.5 per cent, the bank added in its Asia Economic Monitor report.

The report covers the 10 Association of South-East Asian countries - Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Laos, Cambodia and Myanmar - as well as China, Hong Kong, South Korea and Taiwan.

It warned that the region's growth in 2012 could be a weaker 5.4 per cent if the eurozone and US economies contract as much as they did in 2009.

'The turmoil emanating from Europe poses a growing danger to trade and finance within emerging East Asia,' said Iwan Azis, head of ADB's Office of Regional Economic Integration, which produced the report.

'The region's policymakers must be prepared to act promptly, decisively, and collectively to counter what could be an extended global economic slowdown,' he added.

Both the US and the eurozone are key markets and significant sources of financial capital for many export-driven East and South-East Asian economies.

The report warned a new global economic crisis could be worse and more protracted than the 2008-09 contagion.

'With advanced economies' sovereign credit ratings under scrutiny, the scope for rescuing troubled financial institutions is limited,' it said. 'Government guarantees are less valuable. This makes it more difficult to resolve any new global financial crisis quickly.'

The report said the eurozone faces a bleak outlook with the economy expected to grow 1.7 per cent this year and 0.5 per cent in 2012.

It warned that the eurozone would likely fall into a deep recession should the debt crisis spread to Italy or Spain. Germany and France are already facing a credit rating downgrade from Standard & Poor's, which placed nine other euro nations on a negative watch list.

'A severe recession in the eurozone could easily push the US into a recession as well,' it added.

Victor Abola, a professor at the School of Economics of the University of Asia and the Pacific, said he was confident that the US would be able to weather the impact of the euro crisis.

'This hullabaloo about the US being affected is overstated,' he said. 'The US economy relies very little on exports and I doubt if it goes to Europe, and their banks are not that exposed to the debt crisis.'

'Corporate America is in very good shape, employment figures are improving, housing statistics are improving slowly,' he added. 'I think there's no risk of a double-dip recession, very minimal.'

Abola said East Asian economies should continue to 'rev up their domestic demand' to brace for any fallout from the euro debt crisis.