Asia weathering China slowdown

Rich Western countries and India to help regional growth

 A public bus transporting passengers passes by a building construction site in Beijing, China. 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. Photograph:  Rolex Dela Pena/EPA

A public bus transporting passengers passes by a building construction site in Beijing, China. 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. Photograph: Rolex Dela Pena/EPA

Mon, Apr 7, 2014, 23:11

The economies of developing Asia should be able to weather a slowdown in China and register higher growth rates this year, underpinned by a better performance in the rich countries of the West and an improvement in India, the Asian Development Bank says.

“For the developing Asia region, we’ve been characterising it as steady growth. We’re expecting some pickup this year and next, helped by the recovery in major industrial economies particularly the US. China has an outsize moderating input but the pickup in India is offsetting that,” Joseph Zveglich, the Manila-based lender’s assistant chief economist, said in an interview.

Gross domestic product (GDP) in the region’s 45 developing or newly industrialised economies, not including Japan, expanded steadily by 6.1 per cent in 2013, the same pace as in the previous year, according to the bank’s flagship report, the Asian Development Outlook 2014.

Growth in the region is forecast to edge up to 6.2 per cent in 2014 and 6.4 per cent in 2015.

Growth in the euro zone remains a risk factor, but that has eased considerably compared to last year, said Zweglich.

“China is not slowing as much as last year and rising demand from the US and Europe is offsetting this. There is a shift towards a more balanced growth model in China, as policy promotes growth that is more equitable, sustainable, and balanced,” said Zveglich.

This means a downtick in China growth to 7.5 per cent is forecast for 2014 with additional easing to 7.4 per cent in 2015.

Growth in India, Asia’s third biggest economy, is picking up to 4.9 per cent in 2013, but the economy is still operating below its potential.eform to resolve impediments to investment could allow growth to accelerate to 5.5 per cent in this fiscal year and further to six per cent in full-year 2015.

While China has essentially hit middle income level, India was different.

“India has a lot of scope to get up to China’s level but it needs to spearhead reforms to reach that potential. India has had one growth spurt but it has not yet seen China-style growth. It’s difficult for India to replicate China’s growth model because of the different governance,” said Zveglich.

While risks have eased, there were potential pitfalls.

A shock to Chinese growth, for example, if China’s efforts to rein in its credit boom are “too abrupt and excessively undermine growth, while another risk that cannot be ruled out is a shock to global financial markets from changes in US monetary policy, a reference to the Federal Reserve’s move to gradually scale back its unprecedented monetary stimulus.

Also, mixed data from industrialised economies raises the possibility that demand for Asian exports could be weaker than thought.

Meanwhile, the southeast Asian economies were moving at different speeds, although improving global trade conditions will help lift Southeast Asia’s growth to 5 per cent this year, slightly higher than a previous estimate of 4.8 per cent, with Malaysia, Singapore and Vietnam leading the way.

“In the past few years, southeast Asian economies have tended to move in tandem, but now we are seeing more diversity,” he said.

“In Thailand, the political controversy is holding back growth, not just in tourism but also investors are holding back. It is really critical that there be some resolution to the political stalemate and our forecast for a pick-up in 2015 is predicated on a solution,” said Zveglich.

Philippines had high growth last year. This year is starting at a higher base but we are expecting relatively high growth, including the effect of the reconstruction work after the typhoon,” according to Zveglich.

The ADB noted that despite developing Asia’s rapid growth, it continues to lag other regions in public spending on education and healthcare.

“Though many countries have headroom to increase public spending on equity-promoting programs, sizeable future fiscal demands such as those from an ageing population will compete for scarce resources.

“Generating sufficient resources to reverse rising inequality and maintain fiscal sustainability will require exploring all revenue categories,” it said.

The bank urged countries to expand revenue-raising measures to fund targeted poverty-reduction projects and narrow income gaps.

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