Developing Asia Fastest Growing Region as Key Economies Advance Reforms
In an update of its flagship annual economic publication, Asian Development Outlook 2014 (ADO 2014), ADB kept its forecasts for growth of gross domestic product (GDP) for the region at 6.2% in 2014 and 6.4% in 2015. The region grew 6.1% in 2013. Developing Asia comprises the 45 ADB developing member countries.
“Slowing external demand has hurt some economies in the region but as a whole Asia and the Pacific is on track for firm growth in 2014 and 2015,” said ADB Chief Economist Shang-Jin Wei in launching the report. “Moving forward structural reform processes in the [People's Republic of] China, India, and Indonesia—the region's three biggest economies—will be critical in shaping the growth outlook.”
Following severe winter weather in the United States in the first quarter, a value-added tax hike in Japan in the second quarter, and continuing weakness in the euro area, the world's major industrial economies recorded virtually no growth in the first half of the year. They are now forecast to expand by 1.5% collectively in 2014, down 0.4 percentage points from the ADO 2014 forecast in April, before growth picks up to 2.1% in 2015.
Targeted measures to stabilize investment helped the PRC sustain its expansion. Following first quarter growth of 7.4%, steady consumption and improved external demand edged second quarter growth up to 7.5%. Authorities deployed targeted monetary easing and a mini fiscal stimulus to keep growth from decelerating further from the 7.7% recorded in 2013, while keeping credit growth in check. The PRC appears on track to meet ADO 2014 growth forecasts of 7.5% in 2014 and 7.4% in 2015.
India shows new promise of a turnaround. After a decisive election victory, the new government is well placed to pursue reforms to unlock the economy's potential. Reforms to stimulate investment, award timely environmental clearances, and control inflation are expected to build on rising exports to boost economic growth. This update maintains the 5.5% growth forecast for 2014 but raises by 0.3 percentage points to 6.3% the forecast for 2015, when reforms can begin to bear fruit.
Stable growth for the region overall masks shifting fortunes across subregions:
• GDP growth in East Asia will remain at 6.7% in 2014 and 2015, as moderating growth in the PRC and Hong Kong, China—and a slowdown in Mongolia—are offset by export-driven upswings in the Republic of Korea and Taipei,China. GDP growth in Mongolia will fall sharply below the ADO 2014 forecast for 2014 and 2015 as foreign direct investment plummets and mining projects suffer delays. Inflation in East Asia will remain subdued at 2.4% in 2014 but likely creep up to 2.9% in 2015, mainly reflecting the trend in the PRC.
• South Asia is performing better than expected. The subregional growth forecast for 2014 is raised slightly to 5.4%, reflecting strengthening in Bangladesh and Pakistan on higher exports and remittances. Growth in South Asia will pick up to 6.1% in 2015, 0.3 percentage points higher than previously forecast. In addition to the upward revision for India, growth forecasts for Pakistan and Bangladesh edged up in 2015, but efforts to improve the climate for private investment are key in both cases. Forecasts for subregional inflation are trimmed by about a third of a percentage point to 6.1% in 2014 and 5.9% in 2015.
• Southeast Asia will see stronger growth next year after a surprisingly soft 2014. Growth this year is now projected at 4.6%, down from 5.0% forecast in ADO 2014 and actual growth of 5.0% in 2013. Domestic demand has moderated in some of the bigger economies, with GDP forecasts trimmed for Indonesia, the Philippines, Singapore, Thailand, and Viet Nam. By contrast, a rebound in exports from Malaysia has helped to propel considerably stronger economic growth there. Next year, better performance in the major industrial economies and Thailand's recovery from its slump will spur Southeast Asian growth to 5.3%.
• Growth in Central Asia is hobbled by a slowdown in the Russian Federation. Underperforming ADO 2014 projections, growth in the subregion is now projected to decelerate to 5.6% in 2014 as activity slows in Armenia, Kazakhstan, the Kyrgyz Republic, Turkmenistan, and Uzbekistan. The forecast for 2015 is lowered to 5.9% on revisions for Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, and Uzbekistan. These lower growth projections reflect a stagnant Russian Federation and a sharp industrial slowdown in Kazakhstan.
• Prospects in the Pacific have dimmed because of damage caused by torrential rains in Solomon Islands in early 2014, disappointing business activity in Timor-Leste, and a downturn in construction and tourism in Palau.
Weakening food prices and stable oil prices keep inflation in check. Consumer prices in the region are forecast to rise by 3.4% in 2014, the same pace as 2013, but pick up a bit to 3.7% in 2015. Most governments have maintained their policy rates in line with the low inflation environment.
