Asia to post weaker 2015 growth on China, India slowdown – ADB

SINGAPORE (ICIS)–Developing Asia’s economic expansion will decelerate to 5.8% this year from 6.2% in 2014, weighed by the slowdown of China and India, the Asian Development Bank said in a report released on Tuesday.

The region’s projected growth for 2015 was revised down from 6.3%, while the forecast for 2016 was trimmed to 6.0% from 6.3%, based on the latest Asian Development Outlook 2015. (Please see table below)

“Developing Asia is expected to continue to be the largest contributing region to global growth despite the moderation, but there are a number of headwinds in play such as currency pressures, and worries about capital outflows,” said ADB chief economist Shang-Jin Wei.

China’s slowdown is expected to weigh heavily on the region’s economic prospects after its growth moderated in the first eight months of this year amid declining investments and weak exports, the ADB said.

The country is the world’s second-biggest economy and Asia’s biggest emerging market.

China’s growth is now seen at 6.8% in 2015, down from an earlier projection of 7.2% and below the actual 7.3% pace of expansion posted in 2014, it said.

The ADB has also cut its growth projection for India in the current fiscal year ending March 2016 to 7.4% from 7.8%, taking into account weakness in external demand and “a slower-than-expected pace of enacting key reforms” in the country.

Meanwhile, southeast Asian economies are expected to face the brunt of China’s slowdown and the subdued demand from industrial countries, with 2015 growth projected at 4.4%, which should improve to 4.9% next year, weaker than the previous projections of 4.9% and 5.3%, respectively, the ADB said.

Growth in the industrial economies is seen easing to 1.9% in 2015, down from the 2.2% projection in March, as consumption and investment remained soft, according to the ADB.

Meanwhile, the ADB said that inflation in Asia as a whole is expected to ease to 2.4% this year from 3.0% in 2014 because of soft global commodity prices.

However, net capital outflows from developing Asian markets – which gained pace in the first six months of this year, remain a concern as investors anticipated a near-term hike in the US interest rate.

A strengthening US dollar poses a threat to Asian companies with large foreign currency debt exposure.

The share of foreign currency debt among firms in Vietnam, Sri Lanka, and Indonesia exceeds 65%, according to the ADB.

“As a consequence, the region has seen rising risk premiums and weakening exchange rates which could further impede growth momentum,” the ADB said.

Monetary policy authorities in developing Asia will need to find a balance between stabilising the financial sector and stimulating domestic demand to counter the impacts of a rise in the US interest rate, it said.

“Continuing steps to build liquid, well-developed domestic financial markets can help reduce the corporate sector’s reliance on foreign currency borrowings,” it said.