Hong Kong, China (BBN) – The Asian Development Bank (ADB) is significantly scaling back 2012 and 2013 growth forecasts for developing Asia, saying that after years of rapid growth, the region must brace for a prolonged period of moderate expansion amidst an ongoing slump in global demand.
In its Asian Development Outlook 2012 Update, released on Wednesday, ADB projects the region’s gross domestic product (GDP) growth dropping to 6.1 percent in 2012, and 6.7 percent in 2013, down significantly from 7.2 percent in 2011. 
The deceleration of the region’s two giants – the People’s Republic of China and India – in tandem with the global slowdown, is tempering earlier optimism.
“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,” Changyong Rhee, ADB’s Chief Economist said in a statement. “
The report said that the ongoing sovereign debt crisis in the euro area and looming fiscal cliff in the US could have disastrous spillovers to the rest of the world, particularly developing Asia.
The projected slowdown is likely to ease price pressures, however, with inflation falling from 5.9 percent in 2011 to 4.2 percent for both 2012 and 2013, assuming there are no spikes in international food and fuel prices.
The People’s Republic of China (PRC) is forecast to grow 7.7 percent this year and 8.1 percent in 2013, a dramatic drop from the 9.3 percent  posted in 2011. 
The slowdown in the PRC is having a knock-on effect elsewhere in East Asia, with diminished demand for intraregional exports. Weak demand from industrialized countries is impacting East Asia’s exports, and growth in the sub-region are now forecast at 6.5 percent in 2012, with an uptick to 7.1 percent in 2013.
For India, GDP growth will slow to 5.6 percent in 2012, down from 6.5 percent in 2011. The downward revision in India’s prospects, due in significant part to weak investment demand, is expected to slow South Asia‘s growth to 5.6 percent and 6.4 percent for 2012 and 2013, respectively.
Growth in Southeast Asia is expected to quicken to just over 5.0 percent in 2012, mainly due to Thailand’s recovery from severe flooding in 2011. Higher levels of government spending have contributed to growth in Malaysia and the Philippines, while investment and private consumption in the sub-region are generally buoyant with inflationary pressures abating.
Economic activity in Central Asia is moderating as oil prices stabilize and external demand cools. GDP growth is now projected at 5.7 percent in 2012 and is expected to edge up to 6.0 percent in 2013.
The growth forecast remains unchanged for the Pacific region at 6.0 percent for 2012, where the resilience of larger Pacific countries, such as Papua New Guinea, is masking the weakening of some smaller economies.
If an extreme shock were to materialize, most economies in the region have room to use fiscal and monetary tools to respond. However, there is currently no region-wide need to pursue aggressive demand management. Rather, efforts should focus on the medium-term issue of continued soft external demand.
 
BBN/SSR/AD-03Oct12-9:20 am (BST)