ADB joins chorus predicting weaker economy

The Asian Development Bank (ADB) said yesterday it has cut its 2012 growth forecast for Korea, citing growing uncertainties in the global economy.

The regional lender trimmed its 2012 growth estimate for Korea to 3.9 percent from 4.3 percent projected in September.

“The turmoil emanating from Europe poses a growing danger to trade and finance within emerging East Asia. Therefore, the region’s policy makers must be prepared to act promptly, decisively and collectively to counter what could be an extended global economic slowdown,” Iwan Azis, head of the ADB’s office of regional economic integration, said at a press conference.

The 2011 estimate for the Korean economy has also been revised down to 3.7 percent from 4.3 percent.

The ADB expects economic growth in the overall East Asian region will continue to moderate in 2012 as growing sovereign debt problems in Europe and an anemic U.S. economy raise the specter of a deep global economic downturn.

The global lender has also slashed its forecast for the region’s growth next year to 7.2 percent, down from 7.5 percent.

It warned that heightened risk aversion would see investors reduce holdings of Asian financial assets, while highly leveraged European banks are likely to cut lending, leading to tighter credit conditions.

“When the European problem started to become serious a couple of months ago, you could immediately see the effect on the capital markets in some Asian countries where foreign players are quite dominant. It happened in Korea, Indonesia and some other ASEAN countries,” Azis said.

“This time the problem is not only in terms of a credit crunch, or the amount of liquidity provision, but it also affects the exchange rate.”

Yonhap