Asian growth to be hit by weak Western demand

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The Independent Online

Hopes that surging growth in Asia would power the global economy through its present troubles were dealt a blow yesterday when the Asian Development Bank slashed its growth forecast for the continent in 2012 from 7.5 per cent to 6.9 per cent. The bank said it had lowered its growth expectations for the region in response to weakening demand for Asian exports in Europe and the United States.

"Developing Asia is feeling the weight of these weakness among the major industrial economies," the bank warned in its annual report.

The ADB also said Japan's recovery from last year's tsunami and nuclear disaster had been "uninspiring", warning that this too was set to undermine Asian growth rates over 2012. Its outlook for the Indian economy was lowered to 7 per cent.

Analysts argue that much depends on whether China, the world's second largest economy, will be able to engineer a "soft landing", as the authorities in Beijing seek to cool the country's overheated construction market. "Never in history has a country been able to bring an asset price boom to an end without some kind of landing," said Neil Mellor, a senior currency strategist at BNY Mellon. "The problem is that when growth does slow in China, a lot of countries in Asia feed off that table". Last month the Chinese premier, Wen Jiabao, reduced China's growth forecast to 7.5 per cent, the lowest level since 1990. However, the ADB remains more optimistic, forecasting that China will grow by 8.5 per cent in 2012.

David Cameron is presently on an official visit to Asia to boost British trade. The Government wants to double the UK's exports to emerging markets in the Far East by 2020.

The ADB, which was founded to finance poverty reduction projects in Asia, also warned that a widening gap between rich and poor across the region could undermine political stability. The bank's chief economist, Changyong Rhee, estimated that 240 million people would have been lifted above the poverty line over the past two decades if income inequality had remained flat, rather than rising. Mr Rhee added that social tensions, exacerbated by rising inequality, could undermine governments and lead to political populism. Last month Beijing purged one of its senior leaders, Bo Xilai, who had won popularity as party chief of Chongqing by criticising inequality and resurrecting Mao-era songs.