Asian Government's Should Refrain From Tightening `Too Quickly,' ADB Says

The Asian Development Bank raised its 2010 economic growth forecast for the region and said governments must refrain from tightening fiscal and monetary policies “too quickly” to sustain the expansion. 

Asia, excluding Japan, will grow 8.2 percent in 2010, faster than an April estimate of 7.5 percent, the Manila-based development lender said in a report today. The ADB maintained its 2011 growth forecast at 7.3 percent. 

Growth in Asia is outpacing the rest of the world, prompting policy makers to raise interest rates ahead of their counterparts in the U.S. and Europe to fight inflation and curb asset price bubbles. 

Asian emerging-market stocks have risen more than 8 percent this year in dollar terms, beating the 1 percent gain in global shares, indexes tracked by MSCI show.

“Shifting too quickly to fiscal and monetary tightening could heighten the risk of another contraction,” the ADB said in the report. “The global recovery remains shaky, and downside risks lurk. The possibility of a double-dip recession in the major industrial economies has not receded completely.” 

In one sign of the appeal of Asia’s growth, Julius Baer Group Ltd., the 120-year-old Swiss private bank, set up a desk in Singapore to serve wealthy Russians seeking to invest in the region, according to a report yesterday. The bank forecast as much as 20 percent annual growth in net money inflows from the region, compared with the global rate of as much as 6 percent. 

Rate Increases

India this month increased its benchmark interest rate a fifth time this year. Thailand in August raised its key rate and signaled further increases after the economy overcame political unrest to grow faster than estimated last quarter. Taiwan, Malaysia and South Korea are also among those that have boosted borrowing costs. 

In contrast, the U.S. Federal Reserve on Sept. 21 said it’s “prepared to provide additional accommodation if needed to support the economic recovery.” Household wealth in the U.S. fell 2.8 percent in the second quarter as share prices were depressed by the European debt crisis, according to the Fed’s Flow of Funds report on Sept. 17. 

Inflation in Asia will generally be within central banks’ “comfort zones” and may average 4.1 percent in 2010 and 3.9 percent in 2011, the ADB said. 

China will expand 9.6 percent this year, unchanged from the previous estimate, the ADB said. India’s economy will grow 8.5 percent this year, faster than the previous forecast of 8.2 percent, it said. 

The ADB forecast Indonesia’s economy will expand 6.1 percent this year, faster than the previous projection of 5.5 percent. Source: Bloomberg