Achieving holistic growth in Asia

Asian Development Outlook 2009: Rebalancing Asia’s Growth

Publisher: Asian Development Bank, March 2009

The effects of the unfolding global economic crisis loom large in the outlook for developing Asia. With limited direct exposure to the subprime assets at the heart of the global financial meltdown, it was thought that the region would be spared the worst effects—an impression that was borne out by the resilience of the region’s financial institutions.

Cover page of the report/ Photo credit: ADB

Growth in all subregions flagged, except for the Pacific. The People’s Republic of China (PRC) and India both grew at a healthy pace, but at slower rates than in previous years. Expansion in the PRC was a robust 9%, while growth in India was estimated to have come in at 7.1%. Growth in most other countries slackened as well.

The Asian crisis

Amid the harsh global environment, prospects for developing Asia are also deteriorating. GDP growth is projected to decline to just 3.4% in 2009.

As turbulence in financial markets and volatility in commodity prices continue, global economic conditions remain unfavourable. There are tremendous downside risks to this global outlook, which could further slash the already dismal prospects. Under the current outlook, more than 60 million people in the region will remain mired in poverty.

The region’s sharp slowdown underlines the risks of excessive dependence on external demand. Rebalancing growth is thus fundamentally in the region’s own self-interest. Looking ahead, Asian policy makers are facing the key challenge of picking out the optimal mix of policies to strengthen domestic demand in the short- and long-run.

Rebalancing  growth

Nevertheless, in all countries effective rebalancing will require a mix of policies that will both revitalize the domestic economy and bolster domestic demand.

Strengthening domestic demand requires policies that develop social safety nets to encourage more private consumption. Priority should likewise be accorded to enhancing the investment climate and using public investment funds wisely.

Policies pertaining to financial development and adjustment of the exchange rate can promote a better balance between supply and demand. In addition to domestic policies, regional and global efforts are required to effectively address global imbalances which are, after all, a global problem with global causes and effects.