Growth picked up across most of the economies in developing Asia, supported by continued high demand for exports and rapidly expanding domestic demand, a new Asian Development Bank (ADB) report said.
In its new Asian Development Outlook (ADO) 2018, ADB forecasts gross domestic product (GDP) growth in Asia and the Pacific to reach 6.0% in 2018 and 5.9% in 2019, a slight deceleration from the 6.1% registered in 2017.
Excluding the high-income newly industrialized economies, growth is expected to reach 6.5% in 2018 and 6.4% in 2019, from 6.6% in 2017, it said.
“Economies across developing Asia will maintain the current growth momentum driven by sound policies, expanding exports, and robust domestic demand,” said Yasuyuki Sawada, ADB’s Chief Economist.
“Strong regional trade links and rising financial buffers position the region well to withstand potential external shocks, including the risks of rising trade tensions and rapid capital outflows,” he added.
The recovery in industrial economies continues, with the US, euro area, and Japan expected to collectively grow by 2.3% in 2018 before slowing to 2.0% in 2019. Recently enacted tax cuts will fuel growth in the US as the Federal Reserve keeps inflation in check through gradual monetary tightening. Meanwhile, rising business confidence and easy monetary policy will support growth in the euro area and Japan.
The report said that the service sector is fuelling China’s continued growth, increasing by 8% in 2017.
However, it forecast growth in the China to slow to 6.6% in 2018 and 6.4% in 2019, following the rapid 6.9% expansion in 2017. Strong demand at home and abroad together with economic reforms lay the foundation for continued growth and macroeconomic stability in China, it added.
Growth in South Asia remains among the world’s fastest, driven by a recovery in India, the region’s largest economy, according to the report.
“Indian growth is expected to pick up to 7.3% in fiscal year (FY) 2018 and 7.6% in FY2019, following the estimated 6.6% in FY2017. The impact of the demonetization of high-value banknotes has dissipated and the full implementation of the goods and services tax will bolster growth through 2019,” it said.
Southeast Asia continues to benefit from the rise in global trade and the pickup in commodity prices, the report said, adding that the sub-region is expected to maintain its 2017 growth rate of 5.2% in both 2018 and 2019.
“Strong investment and domestic consumption will drive an acceleration in growth in Indonesia, the Philippines, and Thailand, while an expansion in its industrial base will boost Viet Nam, the report said.
Growth in Central Asia is expected to reach 4.0% in 2018 and 4.2% in 2019, on the back of rising commodity prices. Meanwhile, growth in the Pacific will reach 2.2% and 3.0% over the next 2 years as the region’s largest economy, Papua New Guinea, stabilizes following an earthquake that temporarily disrupted gas production.
The report warned that Asian consumers and commodity price rises will fuel higher inflation in the region.
“Regional consumer price inflation is projected to accelerate to 2.9% in 2018 and 2019, from the 2.3% registered in 2017. Inflation projections for the next 2 years, however, are well below the 10-year regional average of 3.7%,” it said.
Risks to the outlook are tilted to the downside, driven primarily by fears of escalating trade tensions.
Recent US tariffs on select products have not yet dented trade, but further actions by the US and counteractions against them could undermine business and consumer confidence in Asia and the Pacific, the report said.
Higher US interest rates could accelerate capital outflows, although this risk is mitigated to some degree by abundant liquidity throughout the region. Fortunately, most Asian economies are well positioned to meet these challenges, it added.