The Asian Development Bank (ADB) said yesterday that growth in Asia's developing countries will slow to 5.8 percent next year, and regional governments must boost domestic demand to offset a deeper slowdown.

The effects of global financial crisis will see growth slow from 6.9 percent this year as nervous global investors scale back regional interests and a drop-off in demand hits the export market, the ADB said in a new report.

China, which has provided the driving force to the region's stellar economic performance in the last five years, will grow at 8.2 percent next year, down from 9.5 percent this year, the Philippines-based institution said.

Earlier in its quarterly economic update for July-September 2008, ADB projected Bangladesh's gross domestic product (GDP) growth in a range between 5.5 percent and 6.0 percent for the current fiscal year.

"The global financial crisis will put a mild brake on Bangladesh's economic growth rate for fiscal year 2009, although continued strength in its agriculture and industries sectors will limit the downslide," the ADB update said.

"Developing Asia -- which initially looked well positioned to weather the global crisis -- has come under increased pressure," the ADB said in its yesterday's special report monitoring financial crisis, released in Hong Kong.

"As global investors scale back emerging market assets amid continued financial system de-leveraging, Asian equities and external funding conditions have been hurt."

Despite a hefty build-up of foreign exchange reserves since the 1997 Asian financial crisis, the global credit crunch is testing Asian banks' ability to keep lending, the report said, adding that economies that depend on exports arc particularly vulnerable.

"Weakening demand for manufactured goods in major industrial coun-

tries means declining export orders from Asia, with knock-on effects for industrial production," the report said.

"Global trade volume is rapidly slowing down and is expected to barely expand in 2009, creating difficulties for regional economies that rely on exports for growth."

The growth figures for developing Asia have been revised down from previous estimates of 7.5 percent for 2008 and 7.2 percent in 2009.

Asia is relatively well-positioned to avoid the worst effects of the crisis, but policymakers must act aggressively to stimulate domestic demand and boost government spending, said ADB.

Stimulating consumption is very important, but in the current situation it will be very difficult to increase consumer spending, said Lee Jong-Wha, head of the bank's Office of Regional Economic Integration.

"That is why we are saying.. governments must Increase their own consumption in a way to expand domestic

demand. Governments could expand investment in infrastructure and construction, we hope it will stimulate privateinvestment."

The ADB also recommended that policymakers in the region act quickly against any further tightening of credit markets, provide enough foreign and domestic liquidity and reinforce crossbordercooperation.

Last year, the report said growing inflation was one of the key challenges to the region's economy, but Lee said inflation now appeared to have peaked. 1 Ie denied that the drastic drop-off in demand could lead to deflation.

South Asia was likely to reach 6.8 percent growth this year and 6 1 percent next year, down from 8.6 percent in 2007.

The ADB’s growth projection for India has been revised down to 7 percent in 2008 and 6.5 percent in 2009, from 9 percent in 2007.

WITH DETAILS FROM AFP