More Evidence Asia Will Slow

The number of economists and economic forecast organizations that believe Asia’s big economies will slow rapidly just increased by one — The Asian Development Bank. In its annual “Asian Development Outlook,” it sounded one more alarm that the region’s GDP improvement will be the worst in recent memory, and that 2013 will not bring relief. The cause is, as with almost all other analyses on the subject, largely Europe. And Europe is not getting any better, so the ADB forecasts could be too rosy.

The organization’s overall assessment of the region:

Growth is now expected to slide from 7.2% in 2011 to 6.1% in 2012, with a bounce back to 6.7% in 2013.

The new report assessed the prospects of several nations that are now high on the ladder of worldwide gross domestic product by nation:

The PRC is forecast to grow by 7.7% this year and by 8.1% in 2013, considerably more slowly than the robust 9.3% growth of 2011;

India will see GDP growth slow to 5.6% in 2012 and bounce back to 6.7% in 2013.

The prediction about China is among the most pessimistic issued by a major finance or economic organization. In July, the International Monetary Fund lowered its forecast for 2012 GDP growth in China to 8.0% from its previous forecast of 8.2% in April. It dropped its estimate of 2013’s growth rate to 8.5% from 8.8% previous. The ADB forecast may only be better because it is more recent. Both predictions beg the question of what forecasts will look like at the end of the year. A 7.7% figure is not very far from 7%, and based on China’s services and factory PMI data, the People’s Republic’s economy has slowed month-by-month all year.

The ADB and IMF analyses bring up the matter again of what constitutes a recession in China. It is probably not the classic developed world definition of two consecutive quarters of GDP contraction. China’s factories, infrastructure and middle-class compensation will break down quickly if exports and wage growth fall below what is considered the normal growth rate of near 10%. It is an economy built for speed and momentum, and, as such, is not prepared for a year or more of sluggishness.

Douglas A. McIntyre