Slower growth in China and India and uncertainty over the US Federal Reserve’s stimulus programme is hurting Asia’s economic momentum, the Asian Development Bank said, as it cut its forecast for the region.

In an update to its annual Asian Development Outlook published in April, the bank tipped regional gross domestic product to grow six percent this year, compared with its earlier forecast of 6.6 per cent. Growth in 2012 was 6.1 per cent.

It also trimmed its 2014 estimate to 6.2 per cent from the 6.7 per cent previously stated.

Asian economies have seen a marked slowdown this year owing to a troubled first six months in China – a key driver of regional growth – while India has been hit by political paralysis, rising inflation and a slumping rupee.

On top of this are worries about the Fed’s massive bond-buying programme, which saw a huge investment splurge in emerging economies when unveiled late last year but which the central bank is now considering winding down.

Falling growth rate of India, China

The ADB cut its 2013 forecasts for China to 7.6 per cent, well down from its April estimate of 8.2 per cent, blaming weaker domestic demand, a softening industrial rebound and sharp downturn in foreign trade.

“Moderating growth in the People’s Republic of China is the price of structural reform as authorities engineer a medium-term transition to a more sustainable growth path than one led by exports and investment,” ADB chief economist Changyong Rhee said in a statement.

“However, this growth deceleration could impact the rest of Asia... since the PRC’s economic influence has grown in the past decade,” Rhee said.

India is seen growing 4.7 percent this year, compared with six percent forecast previously, with the ADB blaming depreciation in the rupee – it hit a record low against the dollar last month. It also cited capital outflows as foreigners repatriate their cash on expectations the Fed’s stimulus will soon end.

India’s economy is also hit by industry and investment bottlenecks due to poor infrastructure and delayed structural reforms, the report said.

Growth forecast for Asia

The ADB now forecasts growth in East Asia – including Hong Kong and Taiwan – to come in at 6.6 percent for the year.

Growth for Southeast Asia is seen at 4.9 percent, from 5.4 percent, as it is hampered by the performances of its three biggest economies – Thailand, Malaysia and Indonesia – which are seeing “lacklustre exports and moderating investment”.

The report said uncertainty over the Fed stimulus has “sparked the recent exodus of foreign capital from emerging markets including India and Indonesia” causing nervousness and contributing to lower-than-expected growth.

“Current conditions highlight the need for the region to exercise vigilance to safeguard financial stability in the short term while accelerating structural reforms to sustain economic growth in the longer term,” Rhee said.

He said he expected economic activity to edge up in 2014, adding that the region was much stronger than during the Asian financial crisis with economies having higher foreign reserves.

Developing Asia groups 45 nations or territories from Central Asia through to the Pacific islands, but excludes Japan.

(This article was published on October 2, 2013)
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