Slowdown due to slow pace of reform by the new government and weak external demand
GN Bureau | September 22, 2015
In an update to ‘Asian Development Outlook’ report, the Asian Development Bank has lowered India’s gross domestic product (GDP) growth to 7.4% in 2015 from an earlier estimate of 7.8%. The reasons for reducing the growth numbers is due to slow pace of reform by the new government and weak external demand.
“The combination of a moderating prospect in China and India, together with delayed recovery of advanced countries, weighed on our forecast for the region as a whole,” said ADB chief economist Shang-Jin Wei, who presented the report at the Foreign Correspondents’ Club in Hong Kong today.
The bank said growth in Asian region would hit 5.8% this year and 6% in 2016. March’s forecast was for 6.3% for both years. The region, which groups 45 countries in Asia-Pacific, grew 6.2 per cent in 2014. Inflation in the region in 2015 is now forecast to be a slightly lower at 2.3 per cent, compared to the 2.4 per cent seen in July, before it bounces back to 3.0 per cent in 2016.
The ADB also warned central banks to prepare for an expected Federal Reserve interest rate rise, with many nations already seeing huge capital outflows as dealers look for better, safer US investments.
Wei said that the overall outlook for the region was “still positive” but had been impacted by capital flow reversals and weakened commodity prices for exporters, partly related to the China slowdown.
However, it tipped China—the main driver of global economic growth—to expand 6.8% this year, instead of the 7.2% previously estimated, following a stream of weak indicators including on trade, inflation, investment and consumer spending.
It added that Southeast Asia was bearing the brunt of China’s slowdown, with growth in Southeast Asia this year put at 4.4%, before bouncing back to 4.9% in 2016.
Jurgen Conrad, head of the ADB’s economic unit, told reporters in Beijing that the revision was “mainly due to the delayed recovery in industrial countries reducing export demand”.
Last week, the OECD had cut its 2015 growth forecast for China by 0.1 percentage points to 6.7%.
ADB urged regional central banks to move now on monetary policy to prepare for a US rate hike, which Fed chief Janet Yellen has said will come before the end of the year.
“To counter the impacts of a US rate rise, monetary policy authorities in developing Asia will need to find a balance between stabilising the financial sector and stimulating domestic demand,” the report warned.
World markets were rocked after the Fed on Thursday held off announcing a rise, with Yellen citing the threats to the US economy caused by China’s economy as a key reason for the decision.
China’s declining appetite for energy, metals and other commodities will hurt commodity-focused export economies, including Mongolia, Indonesia, Azerbaijan, and Kazakhstan, the Asian Development Bank said.
For the second time in just over two months, the ADB cut China’s economic growth forecasts -- to 6.8 percent in 2015 and 6.7 percent in 2016. In July, it estimated a 7 percent expansion for this year and 6.8 percent for next.
China is set to grow at its slowest pace in a quarter century this year even after five central bank interest-rate cuts and fiscal stimulus. Its slowdown is rippling across the region with the ADB cutting growth forecasts for developing Asian economies for this year and next.
The ADB slashed its growth forecast for South Asia to 6.9 per cent this year and 7.3 per cent next year compared with the 7.3 per cent and 7.6 per cent estimates made in July.
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