Outlook
2010
Asian Development Bank
Macroeconomic ManagementBeyond the Crisis
ASIAN DEVELOPMENT
© Asian Development Bank All rights reserved. Published .Printed in the Philippines.ISSN -Publication Stock No. FLSCataloging-in-Publication DataAsian Development Bank.Asian development outlook 2010.Mandaluyong City, Philippines: Asian Development Bank, 2010
.
. Economics. . Finance. . Asia. I. Asian Development Bank.Te annual
Asian Development Outlook
provides a comprehensive economic analysis o economies indeveloping Asia and the Pacic.Te views expressed in this book are those o the authors and do not necessarily reect the views and policies o the Asian Development Bank (ADB) or its Board o Governors or the governments they represent.ADB does not guarantee the accuracy o the data included in this publication and accepts no responsibility orany consequence o their use.By making any designation o or reerence to a particular territory or geographic area, or by using the term“country” in this document, ADB does not intend to make any judgments as to the legal or other status o any territory or area.ADB encourages printing or copying inormation exclusively or personal and noncommercial use with properacknowledgment o ADB. Users are restricted rom reselling, redistributing, or creating derivative works orcommercial purposes without the express, written consent o ADB. ADB Avenue, Mandaluyong City Metro Manila, Philippinesel + Fax + www.adb.orgFor orders, please contact:Department o External RelationsFax + adbpub@adb.org
Foreword
As developing Asia rebounds rom the global economic crisis ahead o the rest o the world, the
Asian Development Outlook 2010
(
ADO 2010
)predicts growth exceeding 7% in the region this year and next. Althoughthat is still lower than the precrisis outcome o 9.6% in 2007, such ahealthy rebound, rom a low o 5.2% in 2009, would be welcome.Te global economy has also turned the corner, with the UnitedStates, eurozone, and Japan beginning a mild recovery in late 2009. Froma collective contraction o 3.5% last year, the three are orecast to expandby 1.7% and 2.0% in the next two years, respectively.Extraordinary scal and monetary stimulus packages implementedin countries around the world to mitigate the negative eects o theglobal nancial crisis ueled the quick turnaround. Large and ast-trackedpublic spending, targeted transers, low interest rates, and unconventionalliquidity measures combined to li growth, albeit with varyingeectiveness.But there are substantial downside risks to the recovery that couldstill see regional and global growth alter in the near term. Mistimedwithdrawal o macroeconomic stimulus measures could derail the ragilerecovery. A reversal o last year’s commodity price deation and a sharprise in international commodity prices could also thwart the global andregional revival. Te persistence o global imbalances, meanwhile, riskssparking uture turmoil, while deteriorating debt positions could imperilscal credibility in some countries.
ADO 2010
highlights two additional risks that are particularly relevantto developing Asia. Te region’s early recovery is attracting large capitalows, the perils o which were made clear in the 1997–98 Asian nancialcrisis; volatile capital ows could again have serious implications orexchange rates and money supply. Moreover, the quick return to highgrowth could accelerate the increase in consumer and asset prices.As it exits the worst eects o this crisis, thereore, developingAsia must remain aithul to its tradition o sound and responsiblescal and monetary policies. Just as they did beore the crisis, thesepolicies will promote macroeconomic stability and sustained growth.Such macroeconomic prudence will provide the needed resources andcredibility or tackling any large and adverse shocks in the uture.Tere is also plenty o scope or improving and strengthening theregion’s scal, monetary, and exchange rate policy rameworks. As Part 2o
ADO 2010
lays out, such adjustments will enable the region to betteradapt to the postcrisis world.In monetary policy, price stability must remain the overridingobjective. But the global crisis highlights the need to prevent asset pricebubbles. Tis suggests that nancial regulation should be more closely coordinated with monetary policy.More exible exchange rates are desirable to reduce the region’scurrent account surpluses. Tis also requires coordinated eort to
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