ADB: China slowdown to dampen recovery for developing Asia

Developing countries in Asia will see their benefits of higher demand from recovering advanced economies offset by a slowdown in China’s economy, the Asian Development Bank said Tuesday.

The region’s gross domestic product is forecast to grow 6.2 per cent in 2014 and 6.4 per cent in 2015, up from 6.1 per cent in 2013, according to the Manila-based bank’s annual Asian Development Outlook report.

“Moderating growth in China as its economy adjusts to more balanced growth will offset to some extent the stronger demand expected from the industrial countries as their economies recover,” the report said.

China’s economy is expected to slow to 7.5 per cent in 2014 and 7.4 per cent in 2015, from 7.7 per cent in 2013, as policies promoting more sustainable, equitable and balanced growth are implemented.

While risks have declined, the report warned policymakers to watch out for excessive credit expansion curbs in China, a faltering in the recovery of the industrial economies, and a shock to global financial markets from changes in US monetary policies.

Despite developing Asia’s steady growth, it lags other region in public spending on education, health care and social protection.

The bank urged policymakers to boost revenue-generating measures to fund targeted subsidies and anti-poverty projects.

“Public spending on education averages 5.3 per cent of GDP (gross domestic product) in the advanced economies, 5.5 per cent in Latin America, but only 2.9 per cent in Asia,” the report said.

Developing Asia only spends 2.4 per cent on health care, compared to 8.1 per cent in advanced economies and 3.9 per cent in Latin America.

For social protection, the region allocates 6.2 per cent, while advanced economies spend 20 per cent and Latin America 12 per cent.

Due to China’s economy moderating, East Asia’s growth will remain flat at 6.7 per cent until 2015.

India’s projected recovery of 5.5 per cent in 2014 and 6 per cent in 2015 will boost South Asia’s GDP to 5.3 per cent this year and 5.8 per cent next year.

Labour tensions in Cambodia and political unrest in Thailand are restraining growth in South-East Asia, where GDP growth is projected to be flat at 5 per cent in 2014, the report said.

The forecast improves to 5.4 per cent in 2015, with growth picking up in Indonesia after inflation ebbs and Thailand’s economy rebounding if political disruption recedes, the report added.

Central Asia will maintain a growth rate of 6.5 per cent in the next two years, but tensions due to Russia’s annexation of Crimea from Ukraine “pose downside risks,” the bank said.

Growth in the Pacific economies will rebound to 5.4 per cent in 2014 as Papua New Guinea commences gas exports and jump to 13.3 per cent in 2015.

COMMENT NOW