Asia’s Stifled Services

MANILA – The eurozone crisis has dominated discussion among policymakers over the last few years, but the economic slowdown in Asia’s two giants – the People’s Republic of China (PRC) and India – has become a source of growing public concern as well. How worried should we be about an additional drag on the global economy?

After years of double-digit GDP growth, the PRC’s economy is decelerating. At the Asian Development Bank, we predict that its growth will slow to 7.7% this year, from 9.3% in 2011. The PRC’s population is aging, real wages are rising, and growth is moderating toward more sustainable rates.

India, too, has massive potential to grow fast and reap a demographic dividend, but it has been struggling with structural reform. We expect that India’s expansion will slow to 5.6% in 2012, from 6.5% last year.

Weak external demand is partly responsible for the falloff in growth, but internal factors – namely, slowing investment and stagnating consumption – are also holding back economic expansion. Maintaining growth in the face of a global slowdown is a daunting task, and it requires rethinking the future of “factory Asia.”