Asian economies face slowdown in 2016 and 2017, ADB says

Economic growth in Asia will slow down in the next two years amid a weak recovery in major industrial economies and lower prospects for China, the Asian Development Bank (ADB) said Wednesday.

In its annual Asian Development Outlook report, the Manila-based bank said gross domestic product for the region was projected to expand by 5.7 per cent in 2016 and 2017, down from 5.9 per cent in 2015.

“China’s growth moderation and uneven global recovery are weighing down overall growth in Asia,” said Shang-Jin Wei, ADB’s chief economist.

“Risks are tilted to the downside as tightening US monetary policy may heighten financial volatility, further moderation in China could spill over into its neighbours, and producer price deflation may undermine growth in some economies,” he added in the report.

“Despite these pressures, the region will continue to contribute over 60 per cent of total global growth,” Wei said.

Growth in China will moderate to 6.5 per cent in 2016 and 6.3 per cent in 2017, down from 6.9 per cent in 2015, the report said.

India will remain one of the fastest-growing economies in the next two years, with its GDP projected to hit 7.4 per cent in 2016 and further pick up to 7.8 per cent in 2017.

South-East Asia is set for stronger growth, with GDP forecast to accelerate 4.5 per cent in 2016 and 4.8 per cent in 2017, from 4.4 per cent in 2015, the report said.

The growth will be led by Indonesia “as it ramps up investment in infrastructure and implements policy reforms that spur private investment,” the report said.

Amid the projected slowdown, the report noted that growth momentum has flagged in developing Asia since the global financial crisis in 2007, with the region’s average growth declining by 2 per cent between 2008 and 2014.

“This decline is likely to have repercussions for the region and the rest of the world,” it said. “Developing Asia’s success in lifting 1 billion individuals out of poverty during 1990-2012 hinged on its ability to sustain high rates of economic growth.”

It added that since the region accounts for more than a quarter of world GDP, “a persistent slowdown in developing Asia threatens to undermine the fragile global recovery.”

Wei said Asian economies should continue to implement reforms that enhance productivity, invest in infrastructure and macro-economic management to increase growth potential and insulate the region from global instability.

“Potential growth depends on both the growth of the labour force and the growth of labour productivity,” he said.

“While altering demographics is not something that can be accomplished within a few years, many developing economies still have tremendous room to use structural reforms to remove distortions in the labour, capital and land markets,” he added.

Wei also urged officials to improve incentives to encourage the private sector to make investments, which would help lead to higher productivity and higher growth potential.

Last update: Wed, 30/03/2016 - 10:53

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