ADB sticks to Asia growth forecasts on China, India strength; cautions on Fed

EghtesadOnline: The Asian Development Bank kept its growth estimates for developing Asia for this year and next at 5.7 percent, saying sustained expansion in China and India can steady the region but warned of risks from a looming U.S. interest rate hike.

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27 September 2016

The Manila-based lender increased its growth forecast this year for China to 6.6 percent from 6.5 percent and for 2017 to 6.4 percent from 6.3 percent, citing fiscal and monetary stimulus measures in the world's second-largest economy, reports Reuters.

The projections for India were kept at 7.4 percent for this year and 7.8 percent for 2017, driven by strong consumption and an investment revival, the ADB said in an update on Tuesday of its Asian Development Outlook released in March.

"Strong growth in China and India is helping the region maintain its growth momentum," said Juzhong Zhuang, ADB deputy chief economist.

"Still, policymakers need to watch for downside risks including potential capital reversals that could be triggered by monetary policy changes in advanced economies, especially the U.S.," said Zhuang.

The possibility of a U.S. interest rate hike could disrupt capital flows and complicate macroeconomic management in the region, the bank said.

"Private debt is on the rise in many Asian economies, which could become unsustainable if economies struggle or interest rates rise sharply," ADB said.

The U.S. Federal Reserve left interest rates unchanged last week but strongly signaled it could still tighten monetary policy by the end of the year if the labor market keeps improving. The Fed has two more meetings this year.

In December 2015, the Fed raised U.S. interest rates for the first time in nearly a decade.

DELAYED RECOVERY

Citing a continued delayed recovery among industrial economies, the ADB reduced its aggregate growth forecast for the U.S., Japan and the euro area by 0.4 percentage points to 1.4 percent for 2016, before seeing it pick up to 1.8 percent next year.

The upward revision in ADB's estimate for China lifted its forecast for all of East Asia to 5.8 percent from 5.7 percent for 2016 while the 2017 projection was unchanged at 5.6 percent.

In the first half of this year, China's economy grew 6.7 percent from a year earlier, slowing from a 6.9 percent pace in all of 2015.

The growth estimate for Southeast Asia was kept at 4.5 percent for this year, which the ADB said was supported by first-half strength in the Philippine and Thai economies. But it cut its 2017 forecast for the region to 4.6 percent from 4.8 percent in its March outlook.

Economies in South Asia are projected to expand by 6.9 percent in 2016 and by 7.3 percent in 2017, unchanged from the March estimates.

Citing an uptick in global oil prices and food, the ADB increased its average inflation forecast for developing Asia to 2.6 percent from 2.5 percent in 2016 and to 2.9 percent from 2.7 percent in 2017.