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ADB Raises Asia Growth Outlook

ADB says trade is rebounding after exports fell for two years, helping to boost the growth outlook for most of the 45 countries covered in the report
Hong Kong and Malaysia received the largest upgrades for this year among major economies in the ADB’s latest outlook as the global trade recovery is helping boost exports.
Hong Kong and Malaysia received the largest upgrades for this year among major economies in the ADB’s latest outlook as the global trade recovery is helping boost exports.

Developing Asia is on track to grow faster this year and next, the Asian Development Bank said on Tuesday, buoyed by a pick-up in world trade and China's expansion, but it flagged risks from tightening US monetary policy.

Developing Asia is expected to grow by 5.9% and 5.8% in 2017 and 2018, respectively, the Manila-based lender said. That is unchanged from its July estimates, but higher than the 5.7% forecast it gave for both years in its Asian Development Outlook released in April, Reuters reported.

"Growth prospects for developing Asia are looking up, bolstered by a revival in world trade and strong momentum in China," ADB Chief Economist Yasuyuki Sawada in a statement after the bank updated its 2017 outlook.

Sawada said developing Asia should take advantage of favorable short-term economic prospects to invest in infrastructure, improve productivity and maintain sound economic policies to lift long-term growth.

However, the ADB trimmed its growth forecast for South Asia to 6.7% this year and 7% next year, compared with estimates of 7% and 7.2% made in July.

Southeast Asia’s economy will grow 5% this year and 5.1% next year, stronger than July forecasts of 4.8% and 5%.

Still, the ADB said regional policymakers need to brace for potential capital outflows and higher borrowing costs as the Federal Reserve begins the unwinding of a decade of aggressive monetary stimulus and continues to raise interest rates.

"Because long-term interest rates in many Asian economies are closely linked to those in the US, policymakers need to strengthen their financial positions further and monitor debt levels and asset prices," the ADB said.

The ADB said Indonesia, Malaysia, Thailand and Taiwan could benefit from a boost in accommodative policy, but intensifying inflationary pressures make the case for stimulus in the Philippines and South Korea less clear.

Inflation in the region was forecast to be slightly slower at 2.4% this year and 2.9% next year, compared with the 2.6% and 3% estimated in July.

The ADB said trade is rebounding after exports fell for two years, helping to boost the growth outlook for most of the 45 countries covered in the report. The region's exports and imports expanded by double-digit rates in dollar terms for the first five months of the year, it said.

China Up, India Down

ADB raised its outlook for China's economic growth this year on the back of strong domestic consumption, an export recovery and solid growth in services.

ADB now expects China's economy to grow 6.7% in 2017, up from a previous projection of 6.5% made in April. The 2018 growth forecast was also raised to 6.4% from 6.2%.

China's economy has grown at a faster than expected 6.9% pace in the first half of this year, on track to beat the government's target of around 6.5% despite Beijing's efforts to curtail risky forms of investments and rising debt.

"China's economy remains resilient, solidifying its role as an engine of global growth," said Sawada.

Meanwhile, ADB slashed India's GDP growth forecast for the current fiscal to 7% from 7.4% owing to weakness in private consumption, manufacturing output and business investment. The 7% GDP growth expected in 2017-18 is lower than 7.1% recorded in 2016-17 and its earlier projection of 7.4% in July, PTI reported.

ADB penciled in 7.4% for 2018-19, down from the earlier forecast of 7.6% in July.

It was, however, bullish on growth gaining traction on reforms. "Private consumption is expected to pick up on the back of low inflation and anticipated wage hikes. Manufacturing is also likely to bounce back as the sector adjusts to the new tax regime," the multilateral lending agency said.

Hong Kong, Malaysia Look Better

The two nations received the largest upgrades for this year among major economies in the ADB’s latest outlook. The global trade recovery is helping boost exports in Hong Kong and Malaysia.

In economies like Indonesia, Malaysia, Thailand and Taiwan, there is room for accommodative policy, the ADB said. In the Philippines and South Korea, the case for stimulus may be less clear because the growth upturn is protracted and price pressures are intensifying.

The region should embark more aggressively on building infrastructure, including through public-private partnerships, the ADB said. More than half of the economies in developing Asia lack dedicated PPP units.

 

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