Global uncertainties, China slowdown weigh on Asia’s growth; India remains a bright star – ADB

Growth is slowing across much of developing Asia due to continued weak recovery in major industrial economies and softer growth prospects for China, which will combine to push growth for 2015 and 2016 below previous projections, the Asian Development Bank (ADB) said in its annual outlook.

In its new Asian Development Outlook (ADO) 2016, ADB forecasts gross domestic product (GDP) growth of 5.7 percent in 2016 and 2017 for the region. In 2015, GDP growth was 5.9 percent.

China’s growth moderation and uneven global recovery are weighing down overall growth in Asia, said Shang-Jin Wei, ADB’s Chief Economist.

“Despite these pressures, the region will continue to contribute over 60 percent of total global growth. Countries across the region should continue to implement productivity-enhancing reforms, investment in under-supplied ‎infrastructure, and sound macroeconomic management to help increase their growth potential and insulate themselves from global instability.”

Industrial economies’ growth will stay at 1.8 percent in 2016, before inching up to 1.9 percent in 2017, the report said, adding that stronger consumption and investment in the US will be tempered by soft external demand. Both the eurozone and Japan will see slightly improved prospects, it added.

Growth continues to moderate in China—the world’s second-largest economy—as exports slow, labour supply falls, and supply-side reforms reshape the economy toward more domestic consumption and a further reduction in excess industrial capacity.

The report forecast thato output in China will increase 6.5 percent in 2016, down from the 6.9 percent increase in 2015, but within the government’s growth target. In 2017, growth will slow to 6.3 percent. Due to its outsized linkages, estimates suggest the drag from the growth moderation in China may be as much as 0.3 percentage points across the region, the report said.

India will remain one of the fastest growing major economies in the period ahead. Growth will reach 7.4 percent in 2016 before picking up to 7.8 percent in 2017. India’s economy expanded by 7.6 percent in 2015 as strong public investment boosted growth, despite weak exports. Reforms geared to attract more foreign direct investment and stronger corporate and bank balance sheets will help maintain growth momentum.

According to the rpeort, Southeast Asia is set for stronger growth as output accelerates steadily from 4.4 percent in 2015 to 4.5 percent in 2016 and 4.8% in 2017. Regional growth will be led by Indonesia as it ramps up investment in infrastructure and implements policy reforms that spur private investment.

Soft global commodity prices, including oil and food, are keeping price pressures low with regional inflation projected to increase slightly to 2.5 percent in 2016, from 2.2 percent in 2015, as domestic demand strengthens, the report said.

The ADB said inflation will reach 2.7 percent in 2017 as global commodity prices recover. Subdued demand for exports of manufacturers and continued low commodity prices will trim developing Asia’s current account surplus from the equivalent of 2.9 percent of regional GDP in 2015 to 2.6 percent in 2016, and further to 2.4 percent in 2017.

Potential interest rate hikes by the US Federal Reserve combined with broader weakness of emerging markets mean that risks to the regional growth forecast remain tilted to the downside, the report said, addig that heightened investor risk aversion, intensified global financial market volatility, and a sharper-than-forecast growth slowdown in China would further weaken the global outlook and directly hurt regional exports and growth.

Tepid oil and commodity prices will continue to dampen the prospects of Asia’s commodity-dependent economies. The lingering effects of the El Niño weather cycle remain a major climate risk for economies that rely on agriculture. While consumer price inflation is generally low but positive, producer price deflation has emerged as a new risk in China and other Asian economies.

 

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