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Eurozone slowdown no longer biggest threat to Asia growth
Heightened political tensions have overtaken the eurozone debt crisis and US fiscal shock as the biggest threats to the developing economies in Asia, according the Asian Development Bank (ADB).

While "austerity fatigue" in the euro area and "unresolved fiscal drag" in the US remain significant risks to developing Asian economies, escalating border disputes in the region pose the largest menace to growth, said the Bank's annual outlook report.

The Bank warned that "potential nationalistic passions", such as those which led to a Chinese boycott on Japanese goods over the disputed sovereignty of eight small islands in the East China Sea last year, could drag on growth in the region.

"Political risk has emerged as the main threat to the global and regional outlook," said the report.

"Border disputes spilled over into the economic arena in 2012. The heated rhetoric has since cooled but could be reignited for political gain."

Nonetheless, the Bank projected that GDP in the 45-nation bloc of developing Asian economies, which includes giants China and India but excludes Japan, would rebound to 6.6pc in 2013 after dropping to 6.1pc in 2012.

“The rebound in People’s Republic of China (PRC) and solid momentum in Southeast Asia are lifting the region’s pace after the softer performance of 2012,” said Changyong Rhee, chief economist at the ADB.

He added that reduced reliance on exports to the sclerotic developed economies will also drive growth.

“Domestic spending, in particular consumption, is the main driver of the recovery, and is a welcome shift from the reliance on the markets of advanced economies.”

The ADB forecast China's economy to expand 8.2pc this year, up from 7.8pc - its slowest pace in 13 years - in 2012, driven by strong domestic demand and better export performance.

However, disappointing inflation figures from the world's second biggest economy suggest that its recovery remains shaky.

China's consumer price index fell to an annualised 2.1pc last month from 3.2pc in February, when prices spiked during the Lunar New Year, according to official figures from the country's National Bureau of Statistics released on Tuesday.

"We have yet to see a surge in final demand ripple throughout the economy," IHS Global Insight analysts Alistair Thornton and Ren Xianfang said in a research note.

"The recovery... has been largely government-driven, and has been underpinned by property froth and rampant shadow finance... This is not a healthy recovery."

Indian GDP growth, which last year slowed to its lowest in a decade at 5pc, could rise to 6pc in 2013 on the back of stronger domestic demand provided it sticks to reforms to encourage investment, said the ADB.

But the economic giant - the world's third largest - could be hampered by heavily bureaucratic structures which curb business investment, it said.

The ADB stressed that in order to achieve its growth potential, India "must create a more favourable environment for investment if it is to sustain this higher rate."

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