The Asian Development Bank on Wednesday downgraded the economic growth outlook for developing Asia, citing ongoing uncertainties in Eurozone and a possible further weakening in global trade.
In the latest Asian Development Outlook 2012, the lender said the gross domestic product of developing Asia may rise 6.9 percent in 2012. This was weaker than the 7.5 percent growth projected in the September report.
The GDP is seen rising 7.3 percent in 2013. The region expanded 7.2 percent in 2011 and 9.1 percent in 2010.
"Continued uncertainties in the Eurozone and a further slump in global trade pose the biggest threats to the growth outlook," ADB Chief Economist Changyong Rhee said.
At the same time, Asian economies are gradually diversifying into new markets and private consumption is trending up, the economist said. Moreover, the region has limited direct financial exposure to Eurozone, which should help sustain its momentum, Rhee said.
The report warned that though inflation is gradually easing, it remained a potential threat given the volatility in food and fuel prices. It also cautioned authorities over the possibility of "growing unpredictability" in foreign capital flows in and out of the region.
"There is no clear case for short-term policy responses, but if inflationary pressures build up again and capital inflows resume, there may be a need to readjust monetary policy to maintain price stability," Rhee said.
Also, in the longer term, policymakers in these countries will need to strike a balance between paying down debt while supporting growth, the report said. Economic growth in East Asia is forecast to moderate to 7.4 percent in 2012 from 8 percent in 2011. This was also weaker than the September projection of 8 percent. Growth is expected to be weighed down by weaker exports and investment.
The outlook for China was cut to 8.5 percent in 2012 from 9.1 percent. In 2013, the economy is expected to grow 8.7 percent.
South Asia is also forecast to remain subdued with growth of 6.6 percent in 2012, tempered by weak demand and fiscal limitations. In September, the region was forecast to grow 7.7 percent. In 2013, the pace of growth is seen accelerating to 7.1 percent, led by the Indian economy.
The fiscal year 2012 growth forecast for India was downgraded to 7 percent from initial forecast of 8.3 percent. GDP is projected to rise 7.5 percent next year. Southeast Asia will see growth quickening, with GDP expanding 5.2 percent in 2012 from just 4.6 percent in 2011, on the back of the continued recovery in the Thai economy, ADB said.