Asian Development Bank sees Indian growth overtaking China this year

ADB says it might co-operate with new China-led development bank

 Indian fishermen silhuetted by the rising sun as they prepare for an early morning catch at the banks of Narmada river in Nemawar district Dewas, 200km from Bhopal, Madhya Pradesh, India. Photograph: EPA/SAJNEEV GUPTA

Indian fishermen silhuetted by the rising sun as they prepare for an early morning catch at the banks of Narmada river in Nemawar district Dewas, 200km from Bhopal, Madhya Pradesh, India. Photograph: EPA/SAJNEEV GUPTA

 

While much of the reporting focus in recent months has been on China’s economic slowdown, the Asian Development Bank (ADB) believes India is poised to outperform the world’s second biggest economy this year.

ADB chief economist Shang- Jin Wei said developing Asia, which includes which groups 45 countries in the Asia-Pacific region, was making a strong contribution to global growth.

“Falling commodity prices are creating space for policymakers across the region to cut costly fuel subsidies or initiate other structural reforms. This is a key opportunity to build frameworks that will support more inclusive and sustainable growth in the longer term,” said Wei at the launch of the ADB’s annual Asian Development Outlook report.

“Risks to the outlook include possible mis-steps in the PRC [People’s Republic of China] as it adjusts to its new normal, less decisive action on reforms in India than anticipated, potential spillover effects on the global economy of the Greek debt crisis and the deepening recession in the Russian Federation, ” the Manila-based bank said.

US growth

The bank expects the region to grow 6.3 per cent in both 2015 and 2016. It grew 6.3 per cent last year.

The Indian government’s efforts to remove structural impediments is giving investor confidence a boost and lifting investor confidence, combined with stronger external demand and ADB’s forecast that India would expand 7.8 per cent this year, up from 7.4 per cent last year, and rising to 8.2 per cent growth next year.

It sees Chinese growth slowing to 7.2 per cent this year and 7 per cent next year, as the government proceeds with its structural reform agenda, further slowing investment, a more moderate rate than the average growth of 8.5 per cent in the period since the global financial crisis.

Geopolitical tensions

Southeast Asia is expected to see growth revive after dipping to 4.4 per cent in 2014, with aggregate growth reaching 4.9 per cent in 2015 and 5.3 per cent in 2016, led by Indonesia and Thailand and with most of the region set to benefit from rising exports and lower inflation.

Meanwhile, a hot topic in the region has been the China- backed Asian Infrastructure Investment Bank (AIIB), a €45.5 billion lender to which about 35 countries have signed up so far, and which has been seen as a challenge to the World Bank and ADB, crucial areas of US influence.

Fearing an assault on the established order in east Asia, Washington doesn’t want its allies to join, saying there needs to be greater assurance that the AIIB will have enough checks and balances on governance and other issues, but stalwart allies such as Australia and even South Korea look set to become members of the initiative.

The Asia Development Bank has said it was in talks to co-operate with the AIIB, a $50 billion lender to be majority funded by China that is seen by some as a rival to the bank and other established international financial institutions.

ADB president Takehiko Nakao said the bank could co-operate with the AIIB through co-financing if its standards for loans were met.

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