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Asian Development Outlook 2012 Supplement: Data is Mixed, but Asia Continues Steady Economic Growth

Asian Development Outlook 2012 Supplement: Data is Mixed, but Asia Continues Steady Economic Growth

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The Asian Development Outlook Supplement updates the economic forecasts of the Asian Development Outlook 2012 Update for the regional economies of developing Asia.

The Asian Development Outlook Supplement updates the economic forecasts of the Asian Development Outlook 2012 Update for the regional economies of developing Asia.

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Published by: Asian Development Bank on Dec 06, 2012
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09/17/2013

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Mixed third quarter data broadly support the
z
orecasts in October’s
 Asian Development Outlook  2012 Update
(
Update
) or developing Asia. Withdownside developments slightly outweighingpositive events, this Supplement shaves the growthorecast or the region by 0.1 percentage point to6.0% in 2012 and to 6.6% in 2013. The October rebound in industrial production in
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the People’s Republic o China (PRC) likely signals anend to the third quarter sot patch—the economyshould expand as anticipated in the
Update
: 7.7% in2012 and 8.1% in 2013. However, with the continuedslowdown in the other East Asian economies,growth in East Asia is slightly revised rom 6.5% to6.4% in 2012 and rom 7.1% to 7.0% in 2013.India’s economy continued to show weakness in the
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third quarter. Anemic industrial production as wellas consumption and investment point to sluggishgrowth in the coming quarters. India’s growthorecast is revised rom 5.6% to 5.4% in scal year(FY) 2012 and rom 6.7% to 6.5% in FY2013.A strong third quarter lited prospects in Malaysia
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and the Philippines, boosting 2012 growth orecastsin the ASEAN 5 rom 5.6% to 5.9%.Commodity price pressures have been relatively
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benign; developing Asia’s ination is expected tohover around 4%.
Major industrial country outlook
Recent data releases in the major industrial economieso the United States (US), euro area, and Japan aremixed. Te third quarter gross domestic product (GDP)growth or the US and euro area came up strongerthan anticipated in the
Update
, but Japan’s gure issignicantly weaker. All in all, as 2012 winds down,overall economic activity in these countries remainsweak. For 2013, despite some downward adjustment orthe euro area, the GDP growth orecast or these majorindustrial economies remains generally unchanged.Compared with the
Update
’s October orecast, 2012is expected to be slightly stronger while 2013 will beslightly weaker (able 1).he second estimate or third quarter 2012 romthe US Bureau o Economic Analysis shows GDPexpanded 2.7% at a seasonally adjusted annualizedrate (saar). Tis was above market expectations andconsiderably better than the previous quarter’s growtho 1.3%. Higher private and public consumptionaccounted or much o the third quarter growth.
Data is mixed, but Asia continues steadyeconomic growth
 
Supplement
ASIAN DEVELOPMENT
Outlook 
December 2012
 
ADB’s Regional Economic Outlook Task Force led in the preparationo the revised outlook or this ADO Supplement. The Task Force ischaired by the Economics and Research Department and includesrepresentatives rom the Central and West Asia Department, EastAsia Department, Pacic Department, Ofce o Regional EconomicIntegration, South Asia Department, and Southeast Asia Department.
Table 1. Baseline
GDP growth (%)201120122013
 ADO 2012UpdateRevisedADO 2012UpdateRevised 
Major industrial economies
a
....5.3United States.8.9...Euro area.4-.6-.4.5.Japan-.7.3.7.6.6
a
Average growth rates are weighed by GNI, Atlas method (current US dollars).
Sources:
Asian Development Bank. 2012.
 Asian Development Outlook 2012Update
; and ADB estimates.
 
Te unemployment rate declined, and retail sales—agood indicator or private consumption—continually expanded. New data releases or October, however,suggest slower growth momentum or the last quartero this year. Te unemployment rate rose slightly inOctober at 7.9% (rom September’s 7.8%), and retailsales were down by 0.3%. Te marginal changes werein part due to the adverse impact o the storm Sandy,which will urther weigh on the strength o ourthquarter growth.Looking ahead, considerable uncertainties remainover the strength o the US economy. Enduringweakness in Europe and the looming “scal cli”—with little sign to date o clear resolution—are weighingdown prospects or the US economy. Te US FederalReserve has renewed its pledge to continue monetary accommodation to support growth; by (i) keepingshort-term policy interest rates exceptionally low untilmid-2015, and (ii) moving ahead with its third round o quantitative easing through the purchase o $40 billionper month o additional agency mortgage-backedsecurities. Te US growth prospects or 2013 as orecastin the
Update
remain unchanged at 2.1%.Although euro area orecasts remain pessimistic,recent data suggest that the recession in 2012 is milderthan envisioned in September. Te third quarter ashestimate indicates that GDP contracted by 0.2% saar,considerably better than the earlier orecast. Industrialproduction contracted 2.5% (seasonally adjusted) inSeptember, ollowing consecutive industrial outputgrowths in July and August. Unemployment in September,however, continued to creep up reaching 11.7%, the highestrecorded since the inception o the euro.Te decline in third quarter GDP was limitedby Germany and France—the two largest euro areaeconomies account or hal the region’s output. GDPadvanced 0.9% saar in both countries. Te next threelargest economies (Italy, Spain, and the Netherlands),however, all contracted, with the Netherlands’ GDPdown 4.1%. More economic contractions in other partso Europe imply it is more burdensome or Germany tocontinue generating growth or the bloc.On debt resolution, the scal consolidation planor Greece was signed this November ollowing a longdebate. Te agreement, however, does not resolveuncertainties surrounding scal consolidation and stillleaves out many details on the precise mechanisms orbringing down Greece’s debt to GDP ratio on time.Tis contrasts with the earlier view that some solidresolutions to the debt problem could be worked outaround the end o 2012.Given these uncertainties, the euro area’s economicrebound in 2013 may be weaker than what the
Update
 anticipated. GDP growth in euro area in 2013 willlikely be marginal at about 0.2% as members’ nancialtroubles remain unresolved.Aer the policy-driven strength o the rst hal o the year, Japan’s GDP contracted sharply by 3.5% saarin the third quarter o 2012, reecting broad-basedweakness in demand. Going orward, zero growthis projected in the ourth quarter, partly due to theimpact on Japan’s exports o recent tensions with thePRC. Tis implies annual growth o only 1.7% or 2012.Tis weakness is orecast to continue through 2013,with the economy expanding by an anemic 1.6%.Considerable internal and external downsiderisks to Japan’s outlook remain. Recovery rom theMarch 2011 earthquake has been slow. Despite severalgovernment measures to mitigate the earthquake’simpact, reconstruction has been weaker and slowerthan expected. Replacing Japan’s nuclear powercapacity remains the key challenge. Te price o imported liqueed natural gas is high relative toEurope and especially the US. Tis damages thecountry’s competitiveness and slows domestic activity.Moreover, the yen remains overvalued.
Regional Economic Outlook
Growth outlook 
Available data through the third quarter o 2012 conrmthat, as a whole, developing Asia’s economic growth iscooling compared with last year’s 7.2%. Although the mixedresults largely support the
Update
’s projections, recentdownside developments are expected to pare 0.1 percentagepoints rom developing Asia’s growth both this year andnext (able 2). Slower-than-expected growth or India,the newly-industrializing economies, and the two largestCentral Asian economies slightly outweighs the more rapidexpansion in some major Southeast Asian economies.In the PRC, October data conrm September’seconomic recovery. Recent developments suggest theeconomy has bottomed out with industrial productiongrowth rebounding to a 5-month high o 9.6% and xedinvestment expanding 20.7%, backed by a 25.5% increasein inrastructure investment. Retail sales also remainedresilient, growing 14.5% in October, driven by increasedsales in automobiles and appliances. Despite continuedweakness in the external environment, ourth quartergrowth expected at around 7.7% will surpass second andthird quarter levels and will likely reach 8% in the rstquarter o 2013. Growth prospects in the PRC remain asorecast in the
Update
, reaching 7.7% in 2012 and 8.1%in 2013.
 
Weak external demand rom major industrialeconomies and the PRC, however, continues to weighdown the growth prospects or the rest o East Asia. Tiscan be seen in the meager growth in Hong Kong, China;the Republic o Korea; Mongolia; and aipei,China inthe third quarter o 2012. Although slightly higher thanthe second quarter, Hong Kong, China’s economy grew 1.3% year-on-year (y-o-y) in the third quarter, while theRepublic o Korea recorded its slowest growth (1.6%,y-o-y) since the third quarter o 2009. Mongolia, whichhas enjoyed double-digit growth recently, had lower-than-expected growth o 5.6% in the third quarter o 2012. Te external sector in these economies continuedto deteriorate amid global headwinds. ogether,economic growth in East Asia has been revised downslightly rom 6.5% to 6.4% in 2012 and rom 7.1% to 7.0%in 2013.Te uncertain global environment and tightmonetary policies adopted to combat domestic inationcontinue to pressure South Asian economies. Moreover,the late and uneven monsoon will hurt agriculturalproduction in India and Nepal. In Bangladesh, thegrowth projection or FY2013 has been revised downwarddue to decelerating export growth, the result o weak global demand. Domestic demand remains anemic asthe central bank continues tightening monetary policy.In the Maldives, recent political turmoil, growingconcern over the increasing scal decit, rising publicdebt, and the eect o the weaker European economy ontourism point to continued economic ragility.In India, recent economic data suggest that theeconomy remains sluggish. Industrial production(IIP) ell by 0.4% y-o-y in September aer expanding amodest 2.3% in August. Te September IIP contractionwas below market expectations, driven by a decline inmanuacturing. Te July–September national accounts validate this weakness. GDP growth dipped to 5.3% inthe second quarter o FY2012 rom 6.7% in the samequarter during the previous scal year, mainly due topoor output in the arm and manuacturing sectors.Moreover, growth o private consumption expenditurewas one o the lowest in recent years. With weak agricultural income keeping rural consumption low andragile investment sentiment in the coming quarters,GDP growth is now projected at 5.4% or FY2012, below the 5.6% orecast in the
Update
. Growth in FY2013 hasalso been revised down rom 6.7% to 6.5%—as the highdecit and ination coupled with weak capital ows willmake it difcult or the government to cut rates to boostthe economy. Although other economies in South Asiaare relatively resilient, the subregion is now expected togrow more slowly, at 5.3% in 2012 and 6.2% in 2013.Surprisingly, Southeast Asia’s economic growth hasbeen slightly upgraded or 2012 due to stronger-than-expected results through the third quarter o the yearin Malaysia and the Philippines. Malaysia’s domesticdemand continues to be strong, driven by privateconsumption and both private and public investment.Te Philippine economy beat expectations as growthaccelerated to 7.1% in the third quarter, compared with3.2% in the same period last year. Te strong thirdquarter perormance was driven by services supportedby sustained, accelerating growth in industrial output.Private consumption and investment, particularly inconstruction, held up well. Tailand is expecting astrong rebound in the ourth quarter due to the low baseeect rom the impact o last year’s oods. Te othereconomies in the subregion are holding up relatively well, except or Singapore’s open economy. Latesteconomic data point to a sluggish economy, growing0.3% in the third quarter compared with the same periodlast year. Overall growth in Southeast Asia is orecastat 5.3% in 2012 beore edging up to 5.5% in 2013. Te topve ASEAN economies will continue to grow at 5.9% and5.8% in 2012 and 2013.Growth in Central Asia continues to soen.Aggregate growth projections o the subregion arerevised down rom 5.7% to 5.3% in 2012 and rom 6.0%to 5.7% in 2013, aected by difculties in the subregion’stwo largest economies—Azerbaijan and Kazakhstan.In Azerbaijan, lower oil output and unexpected delay 
Table 2.
GDP growth, developing Asia (%)201120122013
 ADO 2012UpdateRevisedADO 2012UpdateRevised 
Developing Asia7.26.16.06.76.6
Central Asia6.65.75.36.5.7East Asia8.6.56.47.7.China, People’s Rep. o 9.37.77.78.8.South Asia6.5.55.36.46.India6.55.65.46.76.5Southeast Asia4.65.5.35.55.5ASEAN 54.55.65.95.75.8The Pacic7.6.6.4.4.
Note:
Developing Asia
reers to  developing member countries o the AsianDevelopment Bank and Brunei Darussalam, an unclassied regional member;
Central Asia
comprises Armenia, Azerbaijan, Georgia, Kazakhstan, the KyrgyzRepublic, Tajikistan, Turkmenistan, and Uzbekistan;
East Asia
comprises thePeople’s Republic o China; Hong Kong, China; the Republic o Korea; Mongolia,and Taipei,China;
South Asia
comprises Aghanistan, Bangladesh, Bhutan,India, the Maldives, Nepal, Pakistan, and Sri Lanka;
Southeast Asia
comprisesthe ASEAN  (Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam) plusthe economies o Brunei Darussalam, Cambodia, the Lao People’s DemocraticRepublic, Myanmar, and Singapore; and
The Pacifc
comprises Cook Islands, Fiji,Kiribati, the Marshall Islands, the Federated States o Micronesia, Nauru, Papua NewGuinea, Palau, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu.
Sources:
Asian Development Bank. 2012.
 Asian Development Outlook 2012 Update
;and staf estimates.

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