WASHINGTON – Dimming global prospects and soft domestic demand in China and India are slowing down the pace of economic growth in Asia.
According to the Asian Development Bank’s updated reports, released on Wednesday, Asian countries’ 2012 Gross Domestic Product slid down to 6.1 percent from 6.9 percent in the forecast released in April. Its GDP grew 7.2 percent last year.
Experts blamed the slowdown on the European recession and the looming prospect of the fiscal cliff in the U.S.
China’s estimated growth was cut to 7.7 percent this year from the previous 8.5 percent, while India will see a 5.6 percent growth this year compared with the previous estimate of 7 percent.
This is the first time since 2000 that China’s estimated GDP growth fell below 8 percent.
ADB’s chief economist, Changyong Rhee, said the slowdown was largely due to “the ongoing crisis in the Eurozone and the fiscal tightening in the United States.”
“This slowdown is much due to external factors,” he said. “But, on the other hand, the internal factors such as the slowdown of investment and consumption also play important roles.”
China’s real estate bubble is among those internal factors, said Martin Vieiro, a research analyst at Peterson Institute of International Economics, a nonpartisan think tank in Washington.
“They’ve been putting on some restriction on investment and so forth, which can drag down asset price growth,” he explained.
“There’s certainly have been some concerns about excessive real estate investment reconstruction, and people are worried if that’s going to cause some decline in construction,” said Joseph Gagnon, a senior fellow from the same institute.
As for the stagnated growth of India, Gagnon said “the effect of economic reform has helped India to grow faster than it had been, and the reform basically has been stagnated for years”
Export oriented East Asian countries are expected to see the most contractions.
“Developing Asia must adapt to a moderate growth environment, and countries will need to do more to reduce their reliance on exports, rebalance their sources of growth, and increase their productivity and efficiency,” he said.
Although it has a tight trade relation with China, the U.S. is not expected to be largely affected by Asia’s slowdown, Gagnon said. The influence tends to be one-way.
“The ongoing weak recovery in America and especially the recession in Europe are hurting Asia. Of course, Europe is hurting America too, but I don’t think Asia is really having an independent effect on America,” he said.
Despite Asia’s stagnated economic growth in 2012, Rhee believed that “Asia will maintain its growth momentum, even though we may not be able to expect a two digit growth rate as we have seen in the last two decades.”
Vieiro and Gagnon are more conservative.
“It seems to be a little less optimism about the fact that China can just go up to support global growth,” Vieiro said. “So what people can expect is gloomier road in the global economy.”
“I do think that these super high growth rate you see in Asia, especially in China and India, are pretty much dependent on reforming the economy so it became more efficient and more market oriented. If the reform slows down, then the growth slows down,” Gagnon concluded.