Lack of confidence emanating from the debt crisis in Europe and buoyant — but less than robust — growth in the U.S. has spread to Asia. The Asian Development Bank (ADB) expects the Asian economies to slow down in 2012 in view of the situation in Europe and a weak U.S. economy.
The ADB's report released today evaluates the Asian economies of Brunei Darussalam, Cambodia, China, Hong Kong, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
ADB has lowered its growth projection for the region in 2012 to 7.2% from 7.5% projected in September 2011. However, the ADB maintained its growth forecast for the region at 7.5% for 2011.
China — the second largest economy in the world after the U.S. — is projected to grow at 8.8% in 2012, but less than 9.3% in 2011. The ADB had earlier projected a growth rate of 9.1% for 2012.
China had grown at 9.7% since market reforms began in 1978-79. Growth accelerated to 11% during 2003-07. Between 2008 and 2009, the average GDP growth was 9.4%. In 2010, China grew by 10.3%.
The Asian powerhouse’s economic activity data has been fragile. The Purchase Managers Index (PMI) of HSBC Holdings Plc (HBC) for China’s Services sector fell to 52.5 in November from 54.1 in October – the slowest in three months.
China’s official PMI for the non-manufacturing sector touched 49.7 in November, significantly below 57.7 in October, according to the China Federation of Logistics and Purchasing. China’s official manufacturing index declined to 49.0 in November from 50.4 in October.
Asian economies, which largely rely on export robustness, have had to face a rather soft external demand environment primarily due to the debt crisis and economic sluggishness in the West. Inflation ensuing from high food and commodity prices required them to resort to tough monetary measures. For example, goaded by slowing growth, China recently lowered its cash reserve ratio by 50 bps after almost three years in order to push credit growth.
The U.S. bucked the global trend in November. The manufacturing PMI increased to 52.7 in November from 50.8 in October. Joblessness in the US dropped to 8.6% in November. The U.S. GDP increased 1.3 % in second quarter 2011 and 2.0% in the third quarter.
Despite such positives, the long-term sustainability of economic recovery in the U.S. appears brittle. This is clearly borne out by the recurrent volatility in the numbers. During the second and third quarters of 2010, U.S. GDP had increased by 3.8% and 2.5%, respectively.
Meanwhile, the PMI has averaged 55.6 in the last 12 months in the range of 50.6 to 61.4. Unemployment has declined only in November, dropping by 0.4%, and stayed at around 9.0% in September and October.
The U.S. and China account for almost one-third of the world’s total output. The locomotive model of global growth looks suspect; with the US lacking steam and Asia, led by China showing signs of weakness. As we prepare to ring in the New Year, 2012 will likely be bumpy.
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