ADB slices Asia growth forecasts

A farmer harvests rice on a field next to residential buildings on the outskirts of Hanoi.
Asia’s growth outlook has taken a haircut from slowdowns in China and India as well as developed markets’ soft recovery, the Asian Development Bank (ADB) said in a new report, cutting its forecasts for the region.

“The first half of 2015 has been softer than expected across the board,” the ADB said, citing harsh winter weather and labor disputes at the U.S.’s West Coast ports and Japan’s weak economic recovery as key impacts on growth. “Emerging markets are facing receding capital flows and depreciating currencies – a trend that may be exacerbated by the upcoming rise in U.S. interest rates.”

The ADB cut the region’s growth outlook to 5.8 percent for 2015 and 6.0 percent for 2016, down from its previous 6.3 percent forecast for both years. That compares with the region’s growth rate of 6.2 percent in 2014.

It isn’t clear how much of a concern the slower growth rate should be. Piyush Gupta, chief executive of DBS, told the Milken Institute’s Asia Summit last week that as economies grow in size “a glide path of slower growth” was to be expected. With China on a path to slower growth, the region’s exports, particularly of commodities, are taking a hit, he noted.

But he added: “China at 5-6 percent [growth] still puts a Germany on the map every four years. It’s not negative growth. It’s still creating massive demand. But it might not be enough.”

The ADB cut its forecast for China’s growth to 6.8 percent for 2015, down from its previous forecast of 7.2 percent and below 2014’s 7.3 percent growth rate. It expects the growth rate of the world’s second largest economy will fall to 6.7 percent in 2016.

“Despite robust consumption demand, economic activity fell short of expectations in the first eight months of the year as investment and exports underperformed,” the report said. “As external demand strengthens with the pickup in growth in the industrial countries, and as improved financial conditions support investment, downward pressure on growth will ease.”

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India’s forecasts were also cut by 40 basis points to 7.4 percent for this year, down from a previous forecast for 7.8 percent growth.

“External demand weakness and slower-than-expected pace of enacting key reforms are holding back India’s growth acceleration,” the ADB said, but it added that it expected 2016 growth to pick up to 7.8 percent as reforms began to take hold.

The ADB also cut the outlook for the Southeast Asian region to 4.4 percent this year, the same pace as in 2014, but down from its previous forecast for 4.9 percent. It said it expected growth to rise to 4.9 percent in 2016.

“Thailand has yet to bounce back from its 2014 slump, while infrastructure investment has fallen behind schedule in Indonesia and the Philippines. Drought in several countries, and floods in Myanmar, have hurt agriculture,” the ADB said. “Vietnam, by contrast, is growing faster than anticipated earlier this year, powered by foreign direct investment and buoyant private consumption.”

Leslie ShafferSenior Writer