ADB raises India’s growth forecast to 7%

ADB raises India’s growth forecast to 7%
The Times of India, December 16, 2009, Page 25

REUTERS, MANILA

The Asian Development Bank raised its growth forecasts for developing economies in Asia on Tuesday, but warned against any hasty withdrawal of stimulus packages, saying they were needed to ensure a solid recovery. It also cautioned governments that restricting the capital flooding Asia's emerging economies carried risks, suggesting that allowing more flexible exchange rates was one way to control the investment flows into the region.

The report showed that the ADB maintained its growth forecasts for China at 8.2% in 2009 and 8.9% in 2010. It raised the 2009 growth forecast for India to 7% from 6%, but kept 2010 at 7%. "Recent data reinforces ADB's impression that developing Asia can expect a V-shaped recovery from the global economic downturn," the ADB said. "For many countries in the region, growth in the third quarter of 2009 has been higher than forecast."

The ADB raised its regional forecast to 4.5% on average in 2009 and 6.6% in 2010 from expectations in September of 3.9% and 6.4%, respectively. "Global recovery is still fragile so Asian countries need to maintain current stimulus packages," ADB Chief economist Jong-Wha Lee said. "The Asian countries' monetary and fiscal policies should remain accommodative but they also need to design exit strategies from these stimulus packages." Asian policymakers have put in place massive fiscal incentives and slashed interest rates to record lows to help their economies cope with the global economic crisis.

Many have paused to assess the impact of easier policy, while others have either begun or signalled they were ready to hike interest rates to keep a lid on infationary pressures as their economies gradually pick up.

Withdrawing stimulus too quickly is a risk, the ADB said. "If done too soon, recovery may be at risk; if too late, fiscal deficits and monetary expansion could become unsustainable and inflationary," ADB said in a separate statement.

It said, however, that inflation remained muted for the moment and was likely to remain so, even while the recovery was taking hold. This had allowed authorities to maintain fiscal and monetary stimulus packages.

"In the medium-term, inflation could pick up in line with the general economic recovery and higher commodity prices," it said.

Risks to Asia's expansion included a short-lived recovery in developed economies and destabilising capital flows, it said. "Faster recovery and higher growth in the region should attract more capital inflows, and limited exchange rate flexibility in the region could also encourage increased capital inflows, speculating on anticipated appreciation," it said.