The coming 2009 will be a difficult year for developing Asia and the strong growth momentum in domestic demand is key to keep the regional economy in good shape amid a weakening external environment, the Asian Development Bank (ADB) said on Thursday.

Economic growth in developing Asia will slow to 5.8 percent in 2009, down from a likely 6.9 percent this year and 9 percent in 2007, as the impact of the global financial crisis spreads to emerging markets, ADB said in its December issue of Asia Economic Monitor (AEM).

AEM is a semiannual review of emerging East Asia's growth and policy issues, covering the 10 members of the Association of Southeast Asian Nations (ASEAN); Republic of Korea; Chinese mainland and China's Hong Kong and Taiwan. The ASEAN is composed of Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

With the global economy facing a major downturn, the region's economic resilience will be tested by weakening exports and a sharp slowdown of private capital flows, according to the report.

"2009 is likely to be a difficult year for developing Asia but it will be manageable if countries respond decisively and collectively," says Jong-Wha Lee, head of ADB's Office of Regional Economic Integration.

"Swift action by policymakers to stem both the threat to the financial systems and the real economy will allow most of the region's economies to sustain a healthy if slower expansion," he added.

Maintaining the growth momentum in domestic demand is key to keep the regional economy in relatively good shape amid a weakening external environment, according to the report.

The growth rate of China, the region's growth engine, is expected to moderate to 8.2 percent in 2009 from 9.5 percent in 2008 even as the government has undertaken measures to spur domestic demand to offset a slowdown in exports and private investment growth.

Further clouding the outlook is a deeper, more prolonged global recession creating persistent stress on the region's financial systems.

"The risks to the region's growth outlook are strongly tied to the global outlook through both trade and financial links," Lee said.

"Further financial disruptions could also exert a significant influence on consumer and investor confidence in the region," he added.

While the region's economies and financial systems are fundamentally sound and appear better cushioned to withstand the immediate effects of the crisis than in other parts of the world, ADB said that the global credit crunch is now spilling over into domestic banking systems, squeezing funding resources for corporate investment, and could boil over in some key regional economies if left unaddressed.

If banks in the region become more risk averse, monetary policy may have less traction than in the past and governments will have to develop more active fiscal responses to shore up domestic demand, said the report.

(Xinhua News Agency December 11, 2008)