Growth will make a return next year

The eurozone debt crisis and the risk of rising commodity prices will be Asia’s biggest headwinds over the coming year, according to experts.

While it is forecast that Asia will continue to grow in the next couple of years it will need to pick up the slack of lost trade from the struggling western economies. Europe is Asia’s largest trading partner and with Europe continuing to struggle managers suggest the region will need to boost levels of trade within the countries in Asia.

Growth in the region is forecast at a rate that the west can only dream about, but it is expected that growth will fall in 2012 from last year, before rebounding in 2013.

In the Asian Development Bank’s (ADB) latest outlook published in April, it forecast growth for Asia to be 6.9 per cent in 2012, slightly down from the 7.2 per cent seen in 2011, before rebounding to 7.3 per cent next year.

The bank says growth will ease this year as the global backdrop is one of uncertainty.

“The eurozone is grappling with its sovereign debt crisis; and more generally, stagnation in the major industrial economies of the US, Europe, and Japan – developing Asia’s main trading partners – is stunting demand for Asia’s products,” the report states.

“Increased local demand in Asia has offset some of this lost trade, but it will need to take up more of the slack.”

ADB’s principal economist Donghyun Park notes that while the eurozone crisis remains the single biggest threat to Asia’s robust prospects, the possibility of another oil shock is also a risk, which could reverse the region’s falling inflation.

Inflation in the region has receded and is expected to slow to 4.7 per cent in 2012 and then to 4.4 per cent in 2013.

However, Mr Park says that while Asia is “well placed to weather the storm”, policymakers cannot be complacent.

“They need to be ready to respond if the eurozone deteriorates, particularly as global value chains – Asia’s growth-generating crossborder production networks – and sudden reductions in trade finance can magnify an external shock,” he adds.

“The eurozone crisis highlights the need for developing Asia to rebalance its economies toward domestic and regional demand and from dependence on exports destined for advanced countries. It also provides added urgency to efforts to broaden and deepen regional co-operation.”

Naoyuki Shinohara, deputy managing director at the IMF, expects growth in the region to continue at the same pace at last year, before rebounding in 2013.

He says he expects growth in industrial Asia to grow at roughly 2 per cent, as Japan and New Zealand recover from their natural disasters, while forecasting a decline in emerging Asia to 7 per cent in 2012, down from 7.5 per cent, before recovering.