India, China seen leading robust Asian recovery


Reuters | Aug 19, 2010 | 7:28pm IST

Asian economies are likely to show robust growth this year supported by China and India, though growth could slow in the second half, the Asian Development Bank chief economist said on Thursday. “Asia will be affected by any significant slowdown in the (global) recovery, but Asian countries are now getting support from the strong resilient recovery of the large regions including China and India,” Jong-Wha Lee, also the chief spokesman of the Manila-based lender, told Reuters in an interview. “There will be moderation of recovery partly due to a different base because last year — in 2009 the first half, especially first-quarter — numbers were very bad because of severe impact of worldwide trade collapse.”

In April, the ADB had forecast that China would grow at 9.6 percent and India at 8.2 percent this year, but the figures would be revised in September, he said. Growth in the two economies could decelerate in the second half due to the base effect. He said though downside risks remain in the U.S. economy, it was likely to maintain around 3 percent growth this year. “We do not think there will be double-dip recession in the U.S.,” he said, adding the euro zone was also performing better mainly on account of surge in German exports.

CAPITAL INFLOWS

The decision of the central banks in India and other Asian countries to raise interest rates could possibility lead to a surge in capital flows into the region as investors are looking for safer havens as well as higher returns on investment. “Asian countries are now raising interest rates faster than industrial countries. That will also attract capital flows so we also see the numbers of capital flows remain robust and strong.” India could attract more long-term direct investment than China on better rate of returns in Asia’s third-largest economy, he said, adding the rupee is expected to appreciate against the dollar this year.

Lee said the Indian economy was not overheating but there are concerns about increased inflationary pressures. “My understanding is that India inflation in the consumer goods, especially the food price, increased significantly especially in the fist quarter and early second half (of 2010). “But the non-food price also increased and then core inflation that the central bank should be mostly worried about.” The rupee value against dollar has so far depreciated by about 3.5 percent since April. Lee said the global metal and foodgrains prices were likely to remain stable in coming months. “Oil price will maintain the stable level of about $80 per barrel, over the next one year,” Lee said.

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