Demonetisation will dampen growth: ADB

Slower growth is now expected in India, one of the largest economies

GN Bureau | December 13, 2016


#demonetisation   #Asian Development Outlook 2016 update report   #Asian Development Bank  
Asian Development Bank
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India’s surprise demonetisation of Rs 500 and Rs 1,000 banknotes will likely dampen growth this year, but South Asia remains the region’s fastest-growing sub-region, said the Asian Development Bank in a supplement to its Asian Development Outlook 2016 update report.

Developing Asia’s growth outlook continues to be stable despite a slight downgrade, the report added.

The region is now expected to grow this year by 5.6 percent, or 0.1 percentage point off the rate envisaged in Asian Development Outlook update as slower growth is now expected in India, one of the region’s largest economies. Growth is expected to edge back up to 5.7 percent in 2017, the pace envisaged in the update. By sub-region, growth forecasts are revised slightly down for South Asia in 2016 and the Pacific in 2017 but otherwise unchanged.

The combined growth forecast for the major industrial economies — the United States, the euro area, and Japan — is revised up from update projections as third-quarter outcomes in the US and euro area proved to be stronger than expected. Robust consumer spending growth supported the US economy, while supportive monetary policy and improving labour markets fuelled growth in the euro area. Despite a stronger yen, the external sector still led the expansion in Japan.

Despite an extraordinary and temporary growth dip affecting one of the region’s largest economies, this supplement expects the region as a whole to expand by 5.6 percent in 2016, only 0.1 percentage points less than earlier forecast, and by 5.7 percent in 2017, as forecast.

China is on course to meet growth expectations of 6.6 percent in 2016 and 6.4 percent in 2017. East Asia as a whole is seen to expand by 5.8 percent this year and 5.6 percent in 2017 as growth stabilises in the sub-region in line with earlier forecasts.

India’s demonetisation will likely dampen growth this year, but South Asia remains the region’s fastest-growing sub-region. It is now expected to grow in 2016 by 6.6 percent, or 0.3 percentage points less than previously forecast, and in 2017 by 7.3 percent, as in the update.

Growth in the major Southeast Asian economies in the third quarter met projections and even surpassed them in Malaysia and the Philippines. In aggregate, the sub-region is still forecast to expand by 4.5 percent in 2016, picking up to 4.6 percent in 2017.

The continued rise in commodity prices has not sufficed to offset fiscal drag in the oil-producing economies of Central Asia. Forecasts in the Pacific are largely unchanged from the update, though cyclone damage in Fiji is seen to be having a bigger impact on its economy than earlier envisaged.

Although oil price prospects brightened with the agreement of major oil producers to cut production beginning in 2017, inflation remains subdued.

 

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