* ADB expects Fed to begin tapering early next year
* Poses challenges, but no crisis for developing Asia, says
* ADB says India and Indonesia have "sufficient" FX reserves
* Developing Asia's growth forecast at 6.0 pct in 2013 vs
6.1 pct in 2012
* China's growth revised down to 7.6 pct in 2013, 7.4 pct in
* India's growth revised down to 4.7 pct for 2013, 5.7 pct
By Rosemarie Francisco
MANILA, Oct 2 (Reuters) - Asian economies can ride out the
storm when the Federal Reserve finally begins ending years of
easy money, with even those most at risk, India and Indonesia,
holding enough currency reserves for rough times ahead,
according to the Asian Development Bank.
The ADB reckoned the U.S. central bank would wait till early
2014 to slow its dollar printing presses, after the Fed
surprised markets last month by leaving its $85 billion monthly
bond buying programme unchanged.
"We are anticipating that is something that would start
early next year," ADB assistant chief economist Joseph Zveglich
told a news conference, adding that it was crucial that the Fed
communicates its timeline for reducing the stimulus programme.
Updating forecasts for 2013 and 2014, the Manila-based
lender said on Wednesday that growth in developing Asia is
likely to be slower than it thought three months ago, when it
last revised forecasts to an annual outlook released in April.
It now reckons the region, grouping 45 countries in
Asia-Pacific, will grow 6.0 percent in 2013 and 6.2 percent in
2014, little changed from last year's growth of 6.1 percent.
Between May and August, emerging markets were gripped by a
sell-off after the Fed signalled that it would taper its
bond-buying stimulus once the U.S. economy improved.
The sudden capital outflows caused some alarm, but ADB said
worries over potential for a regional meltdown were misplaced.
"Fears of a repeat of the 1997 Asian financial crisis are
unwarranted," ADB said in a statement. "The region is now in a
stronger position to weather the storm, with many economies
running current account surpluses and holding large foreign
The bank said developing Asia's current account surplus is
expected to narrow to 1.6 percent of GDP in both 2013 and 2014
from 1.8 percent last year.
Whereas high external deficits resulted in India and
Indonesia suffering far sharper falls in their currencies during
the emerging markets' sell-off, ADB took comfort in their levels
"Widening current account deficits have long made both
economies more susceptible to shifts in market sentiment, as
have fiscal deficits in India. Fortunately, both have sufficient
foreign exchange reserves, enough as of August to cover imports
to India for 7 months and to Indonesia for 5 months," ADB said.
With inflation generally subdued, Zveglich did not expect
central banks in Asia to tighten monetary policy to slow a
potential exodus of capital when the tapering begins, and said
they were more likely to move in tandem with policy changes in
The partial U.S. government shutdown due to the political
impasse in Washington over the budget represented a clear
downside risk the longer it lasted, but it would not have an
immediate impact on the region, the ADB economist said.
NEED FOR REFORM
China is expected to grow 7.6 percent and 7.4 percent this
year and the next, ADB said, trimming its July forecasts of 7.7
percent and 7.5 percent respectively.
The slowdown in the world's second biggest economy may usher
in a more sustainable growth path as Chinese authorities seek a
balanced development strategy away from its previous export- and
investment-led growth model, the bank said.
ADB made significant downward revisions to 2013 and 2014
growth forecasts for India, Indonesia, Malaysia and Thailand.
India is expected to expand 4.7 percent and 5.7 percent this
year and the next, sharply lower than previous forecasts of 5.8
percent and 6.5 percent, respectively, with growth hampered by
weak industry, investment and external demand and delays in
The Philippines, the only country in East and Southeast Asia
whose growth forecast was revised up, is expected to grow 7
percent this year against an April forecast of 6 percent. The
country has kept pace with China to become one of the two
fastest growing nations in the region this year.
ADB also said inflation in Asia is likely to remain subdued
this year and next, but some countries were likely to see
mounting price pressures. Inflation was expected to accelerate
in Indonesia as it scales back fuel subsidies, the bank said.
ADB said the past few months' market volatility highlighted
a need for structural reform, including governance reforms.
"Recent financial market volatility and a pullback in
economic activity have added fresh urgency to long-term
structural action which can ensure development gains are not
lost, and future growth benefits all."
- Budget, Tax & Economy