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Economy

ADB sees Asian growth but warns of downside risks ahead

HONG KONG - Despite its forecast of a 5.7% economic growth for Asia, the Asian Development Bank warned of downside risks in its latest report.

ADB highlighted several perils that could derail economic development across the region in a report published Tuesday. Those risks include the persistent feeble growth in developed markets, potential interest rate hikes by the Federal Reserve, growing protectionism, mounting private debts and natural disasters.

"We are currently seeing more downside risks than upside potential," Joseph Ernest Zveglich, ADB's macroeconomics research division director, told Nikkei Asian Review on Wednesday. "What might be the upside would be whether we are being too gloomy about the prospects for the U.S., euro area and Japan."

He says that the uncertainties sparked by Britain's vote to leave the European Union almost warrants a downward revision of ADB's 2017 economic forecasts for developed countries, while the U.S. recovery is too "elusive" to lift the outlook for Asia.

"Our biggest fear is ... if things continue to be weaker or even weaker than we are expecting," said Zveglich."Within the region, it does seem that the domestic demand is quite robust. But we do see some weak areas, in particular in Central Asia, where low prices and weakness in the Russian Federation have taken their toll. The extent of the fiscal drag from continued low prices has been much more intense than we were anticipating back then, so we have seen a big downgrade to our forecasts in Azerbaijan and Kazakhstan, the two largest economies there."

ADB pared its estimates for economic growth in Central Asia to 1.5% from 2.1%, and that of the Pacific to 2.7% from 3.8% for 2016. It maintained its 2016 forecasts for South Asia and Southeast Asia at 6.9% and 4.5% respectively, while raising that for East Asia by 0.1 percentage points to 5.8%.

A partial rebound in oil prices was factored into ADB's forecasts. "We have seen prices going up slightly faster than we are anticipating," said Zveglich, adding that oil prices would bottom out this year and reached $50 per barrel in 2017.

ADB does not expect an interest rate shock, given that the Federal Reserve has already signaled that it would hike rates gradually. But it saw "creeping protectionism" as "a worrying trend" as export growth could grind to a halt.

Expansion in the region's export volumes had slowed to 4.7% annually between 2011 and 2015 from 11.2% between 2000 and 2010, according to the bank.

"Asia has benefited from openness and trade; so any move in the opposite direction, we have to recognize that as a threat to our forecasts," said Zveglich. He suggested that the stalled Trans-Pacific Partnership and Brexit were both indicative of a more "inward-looking mindset" that would upset the development of a globalized economy.

"You need leadership in the region to make sure that we are not falling prey to that pessimism on globalization," said Zveglich.

China and India are the only two bright spots that ADB is optimistic about. It upgraded China's economic growth for the year by 0.1 percentage points to 6.6% on the government's strong fiscal and monetary stimuli, which would be constructive for domestic demand.

It also believed India's steady progress in reform such as the passing of the goods and services tax bill, and a healthy monsoon season would help maintain its growth at 7.4% and 7.8% in 2016 and 2017 respectively.

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