AP Interview: Asia to power world economy in 2012

The global economic slowdown will affect Asia this year but the region will remain the economic powerhouse of the world, led by China, India and Indonesia, the head of the Asian Development Bank said Wednesday.

Haruhiko Kuroda said in an interview with The Associated Press that the bank expects Asian economies — excluding Japan, Australia and New Zealand — to grow by around 7 percent this year, down from about 7.5 percent in 2011 and 9 percent in 2010.

His slightly less rosy forecast was in sharp contrast to the gloomy International Monetary Fund announcement Tuesday that it was cutting its forecast for global economic growth this year to 3.3 percent from 4 percent because of a slowdown in the world economy and the likelihood of a mild recession in Europe.

Kuroda said regional and domestic demand in Asia are still “fairly robust” though external demand is lower “so GDP growth as a whole is also slowing.”

He said Asia has already been affected by the ongoing European financial crisis in two ways — through the withdrawal of credit in Asia by many European banks and financial institutions and a drop in trade, which will impact China because Europe is its largest export market.

“If the situation further deteriorates seriously, that could affect Asia,” Kuroda said. “So I really hope that the European financial crisis can be overcome.”

Nonetheless, Kuroda predicted that China will continue to lead Asia's growth in 2012, expanding its economy by more than 8 percent, followed by India at between 7-8 percent and Indonesia at around 6.5 percent.

The Asian Development Bank or ADB has 48 members and while most developing countries have a strong financial sector and reasonably good public sector, some have serious fiscal deficits like Pakistan, where huge floods have devastated the economy, he said.

It has experienced double-digit inflation in the last two years and growth of only about 3 percent.

The ADB has been providing loans and grants, totaling $17 billion in 2011, to nearly 40 developing countries including Pakistan, 14 Pacific island countries with economic growth rates of about 3-4 percent, as well as Vietnam, Laos, Cambodia, Nepal, Bangladesh, Afghanistan and others, he said.

Despite “extreme difficulties,” Kuroda said, “Afghanistan has made significant progress.”

“The average growth rate in the last 10 years or so in Afghanistan has been around 9 percent,” spurred by major assistance from the United States, European Union, Japan and the ADB, he said.

With foreign forces scheduled to complete their pullout in 2014, he said, “economic aid must be increased so as to maintain the momentum of economic growth, of social development, and the momentum of democracy in Afghanistan.”

“It's not easy but I am hopeful that the international community will continue to assist Afghanistan,” Kuroda said.

As for his native Japan, the ADB chief said two things could affect the economy in coming years — the exchange rate and electricity costs.

The yen is very strong and high exchange rates affect the Japanese manufacturing sector, he said.

“Hopefully in coming months the yen could more or less stabilize,” he said.

Last year's earthquake and tsunami created power shortages and electricity costs went up “and are likely to rise further” which could also affect the Japanese manufacturing sector, Kuroda said.

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