ADB cuts emerging Asia forecast

The Asian Development Bank has cut its economic growth forecast for developing Asia, citing weakness in region’s two largest economies China and India and jitters over plans to scale back United States stimulus that destabilised financial markets.

The Manila-based lender says it expects the region’s emerging economies to grow by six per cent this year, down from 6.6 per cent predicted in April.

The ADB also has cut its 2014 growth forecast, to 6.2 per cent from 6.7 per cent.

“Developing Asia is challenged to sustain its growth momentum,” the bank said in an update to its Asian Development Outlook report, which covers 45 developing or newly industrialised countries in Asia and the Pacific but excludes Japan.

The ADB said growth in China is softening after authorities took action to rein in credit growth and the shadow banking industry, part of a wider effort to re-orient the economy away from exports and investment and toward more sustainable domestic consumption.

“Slower growth is the price of structural reform for the longer term,” the report said.

China’s economy, the world’s second biggest, is now expected to expand 7.6 per cent, down from 8.2 per cent forecast earlier this year.

The country’s communist leaders are trying to reverse a painful, extended slowdown that dragged growth down to a two-decade low of 7.5 per cent in the second quarter.

In India, growth is slowing because industry and investment are hindered by poor infrastructure and long delays in structural reforms, the bank said in cutting its forecast to 4.7 per cent growth from six per cent.

The bank also lowered its Southeast Asia forecast because of lacklustre exports and moderating investment in Indonesia, Thailand and Malaysia, though stronger than expected growth in the Philippines partially offset the decline.

The region growth outlook was also hurt by nervousness that US Federal Reserve policymakers were planning to scale back their monetary stimulus program, the bank said.

The worries rocked financial markets in some countries including India and Indonesia, where stocks and currencies tumbled as foreign investors started pulling funds out on the expectation of higher returns back home.

The turbulence triggered fears that it would lead to a wider meltdown, similar to the 1997 Asian financial crisis, but the ADB said such fears were “unwarranted” because countries have since beefed up their foreign currency reserves, strengthened economic management and tightened financial regulation and supervision.