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Asia urged to focus more on services as slowdown worsens
Publication Date : 04-10-2012
Economic growth in developing Asia is slowing down faster than previously anticipated due to the continuing slump in global demand, said the Asian Development Bank (ADB), which has urged Thailand and other countries to pay attention to the service sector as it has the potential to be a new source of growth.
The ADB projects developing Asia's gross-domestic-product growth dropping to 6.1 per cent this year, against the 6.9 per cent projected in April, Luxmon Attapich, senior country economist at the bank's Thailand resident mission, said yesterday.
The regional economy is expected to expand 6.7 per cent next year, with growth rates this year and next down significantly from the 7.2 per cent experienced in 2011.
The decelerating growth of the region's two giants, China and India, is tempering earlier optimism, according to the ADB.
China's growth is projected to be 7.7 per cent this year and 8.1 per cent in 2013, a dramatic drop from the 9.3 per cent posted last year.
The Indian economy is forecast to grow by 5.6 per cent this year, decelerating from 6.5 per cent last year.
"Excluding China and India, the rest of developing Asia is more resilient," said Luxmon.
The bank also revised downward its projection of Thai GDP growth to 5.2 per cent this year, against the 5.5 per cent forecast previously. The economy is predicted to expand 5 per cent next year.
A slowdown in Thai exports has adversely affected the economy, and export growth will probably be just 5 per cent this year, she added.
Public spending and domestic consumption will shore up the economy, and government policy such as the rice-pledging scheme will boost consumption, the economist said.
Major risks to the region include the euro-zone crisis, the US "fiscal cliff" and the volatility of capital flows.
While inflationary pressure eases to an estimated 4.2 per cent this year, recent rises in commodity and food prices could pose a trouble, said Luxmon.
Myanmar bucks the trend
The bank has, however, revised upward its growth forecasts for Myanmar's economy.
GDP expansion is projected to be 6.3 per cent this year, up from the 6 per cent forecast previously, while the country is expected to achieve growth of 6.5 per cent next year.
Investment in oil, natural gas and power, expansion in the construction sector and rising tourism and exports will contribute to Myanmar's higher growth.
"It is interesting in a way because where the rest of Asia sees a slowing down in growth, Myanmar, almost alone, sees a pick-up; this growth is due to recent economic reform and the economy opening up," said Craig Steffensen, ADB country director at the Thailand resident mission.
The projected growth rate could have been even higher, but for the country's severe infrastructure and bureaucratic constraints. For example, electricity supply is inadequate, he said.
Myanmar also has a limited number of qualified bureaucrats who can work with international institutions, he added.
Luxmon said Thailand and other Asian countries could find a new source for future growth in services. The region needs to liberalise and upgrade its service sector, particularly modern service industries such as in the information and communications technology, financial and professional fields, she said.
"The service sector is smaller in Asia than in Latin America and developing Europe," Luxmon said, adding that Asia's services productivity was also low.
The tax system also needs to be revised. For example, China imposes higher tax rates on services than on industrial production, she said.
Meanwhile, many countries - including Thailand - have inadequate ICT infrastructure and a shortage of skilled workers in modern service sectors, the economist added.