The Asian Development Bank raised its regional growth forecast this year from 6.6 percent to 7.5 percent on Tuesday but warned that governments need to adjust policies to avoid shocks that could hamper their recovery.
China is forecast to grow by 9.6 percent, after last year's 8.7 percent expansion almost singlehandedly lifted the region's overall growth to 5.9 percent, offsetting weakness elsewhere. Another powerhouse, India, is projected to see growth rise to 8.2 percent from last year's 7.2 percent.
Five Southeast Asian economies that contracted last year — Malaysia, Singapore, Thailand, Cambodia and Brunei — also are set to return to growth, together with Hong Kong, Mongolia and Taiwan, the bank said in its economic outlook.
In 2011, GDP growth across the region is seen easing back to 7.3 percent.
Investment is expected to remain strong and private consumption improve as projected growth this year and next lifts domestic demand, boosting consumer price inflation to about 4 percent, the bank said.
The fragile recovery still could be derailed by a premature withdrawal of stimulus, a sharp rise in commodity prices, persistent global financial imbalances and deteriorating debt positions in some countries, said ADB President Haruhiko Kuroda.
Asia's recovery is attracting large capital flows, the perils of which were made clear in the 1997-98 Asian financial crisis, he said.
"Volatile capital flows could again have serious implications for exchange rates and money supply," Kuroda said.
"As it exits the worst effects of this crisis, therefore, developing Asia must remain faithful to its tradition of sound and responsible fiscal and monetary policies," he said.
The bank proposed monetary, exchange rate and fiscal policies to enable the region to adapt to the post-crisis world. It said that while price stability is the overriding objective, there needs to be better coordination between fiscal regulation and monetary policy to avert a homegrown financial crisis.
"After all, the combination of lax monetary policy and inadequate financial regulation contributed to inflating the U.S. housing market bubble that the immediate catalyst of the global financial crisis," the bank said.
Excessive foreign exchange market intervention should be reduced in favor of greater flexibility, and capital controls could help guard against foreign exchange volatility, it said.
Developing Asia refers to 44 countries and territories from the Pacific to Central Asia, excluding Japan.
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