Developing Asia can weather Fed's tapering, says ADB

Wed Oct 2, 2013 1:57am EDT
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By Rosemarie Francisco

MANILA (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.

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 signaled 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, and markets are now treading water, waiting for the Fed to act.

"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 reserve stockpiles."

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 of reserves.   Continued...

A general view of the U.S. Federal Reserve building as the morning sky breaks over Washington, July 31, 2013. REUTERS/Jonathan Ernst