The Asian Development Bank reduced its estimates forecast for 2012 and 2013 for the Asian region. That happened on Wednesday when the amount of global demands collapsed. That shook up the most powerful countries in Asia. Among them were China, India and some other countries whose revenues largely depend on their export.
The ADB reduces China’s GDP growth estimate with almost 1% point to 7.7% from the previous 8.5%. In that way the bank shows that soon one of the largest economies in the world may experience some problems due to the low global demand. The unstable situation in its biggest partners in trading can also add up to China’s risky future.
However, the ADB is confident that China can escape an eventual economic catastrophe, because the country’s government has a few stimulus measures up its sleeves.
Reports state that the low demand levels, especially those in Europe, will hinder the economy growth in the following months.
Nevertheless, China’s policymakers can mitigate the effects from the economic turmoil in the world. The country’s position in the financial sector is stable. Therefore, inflation reduction and measures that include expansionary policy should be enough to break the economy’s fall. However, China must quickly find other sources of growth and make its structural reforms for broad-based income more forceful.
Another survey confirmed China’s economic problems. It showed that the service sector of the Asian country, which was recently thriving, drastically slowed down in September. Its key activity index dropped to almost two-year lows. Back then, the low production rates spread through the rest of the country.
The region was put into risk by the Eurozone debt crisis and the US financial problems. The most economically open countries in the Asian area are also the ones who are most likely to be affected by these events.
Despite the fact that the Asian capital market is quite stable, there still exists a risk of swift changes in the capital flow in the region.
Nevertheless, many Asian countries can afford to use different fiscal and monetary tools to maintain their level of domestic growth. That is because the inflation rates are not going to grow as fast as it was predicted.
After years of rapid economic development, Asia must now prepare for a long period of slow expansion.
There are a total of 45 countries in Asia. The continent is expected to grow by 6.1% in 2012 and by 6.7% in the next year.
These numbers are considerably lower compared to April forecast which amounted at 6.9% for 2012 and 7.3% in 2013, as well as 2011’s expansion of 7.2%.