April 13, 2017 10:00 am JST

The ADB forecasts the slowest Asian growth since 2001

Region will remain the global economic driver in 2017 despite the dip

MIKHAIL FLORES, Nikkei staff writer

Malaysia is one of the resource exporters expected to benefit from a recovery in major industrial economies.

MANILA Asia's growth will fall to its slowest pace since 2001 this year amid policy uncertainty in advanced economies and an outflow of capital, according to the Asian Development Bank.

In its 2017 Asian Development Outlook, released on April 6, the Manila-based lender projects regionwide growth of 5.7% in 2017 and 2018, down 0.1 percentage point from last year.

Developing Asia accounts for 45 of the ADB's 67 member economies, which also include countries in Europe and North America.

Growth in China, which accounts for roughly 60% of the regional economy, will decelerate by 0.2 point to 6.5% in 2017 and slow further to 6.2% in 2018 as Beijing takes further steps to shift the country to a consumption-driven economy, the report said. The push by the world's second-largest economy to achieve greater financial stability, such as by lowering high corporate debt and addressing shadow banking, is coming at the cost of a cooling economy.

The ADB sees China's slowdown weighing on East Asia's growth, though public spending is expected to boost the economic prospects of the subregion's smaller economies. South Korean growth is seen slowing by 0.2 point to 2.5% in 2017, while Taiwanese growth is expected to improve to 1.8%, up 0.3 point thanks to government spending that will lift growth of the local economy.

"The controlled moderation of growth in the People's Republic of China is balanced by expected healthy growth elsewhere," the ADB said. Thirty countries in the region are expected to grow at a faster pace this year, buoyed by higher external demand and recovering global commodity prices.

The bank sees India, the region's second-largest economy and the source of a tenth of its output, growing 7.4% this year and 7.6% the next, driven by improving business and investment prospects as a result of government deregulation and tax reforms. Although the country's demonetization of high-value bank notes squeezed consumption, the impact is expected to be only temporary.

Most Southeast Asian countries will log faster growth this year. "With normal weather supporting agriculture and a steady recovery in the major industrial economies boosting exports, growth will pick up in nearly all of the economies in the subregion," the ADB report said. Vietnam's growth will increase from 6.2% in 2016 to 6.5% in 2017. Other commodity producers, such as Indonesia and Malaysia, also stand to benefit.

Only the Philippine economy is seen slowing, from 6.8% in 2016 -- an election year -- to 6.4% this year. Thailand is expected to pick up from 3.2% in 2016 to 3.5% in 2017.

The recovery in global oil prices sets the stage for a modest recovery in Central Asia, with growth of 3.1% seen for 2017 and 3.5% for 2018, after slowing to 2.1% in 2016. Pacific economies are also expected to rebound in 2017, with Papua New Guinea seen recovering from the contraction that hit the oil and gas sector in 2016.

AT THE FED'S MERCY The possibility of sharper-than-expected interest rate hikes by the U.S. Federal Reserve clouds the outlook for Asia. In March, the U.S. central bank raised the overnight rate for the third time since the global financial crisis. The ADB warned that the recent surge in inflation in the U.S. could prompt the Fed to accelerate the pace of its monetary tightening, and that Asian economies with high corporate and household debt are vulnerable to any resulting financial shocks.

"Possible shifts in trade and tax policies, especially policy changes being discussed in the U.S., could create uncertainty for business investment and export growth in developing Asia," the ADB said.

U.S. monetary tightening could send Asian currencies falling against the greenback, with those economies with more open capital accounts bound to experience the biggest currency slides.

Further improvements in the U.S. economy will trigger capital outflows from Asia, the ADB added.

While it may be possible to contain the risks posed by mounting household debt in some Asian economies for the time being, the ADB has urged authorities to bolster efforts to mitigate systemic risk.

Despite the expected moderation in growth and the looming risks, Asia will continue to drive global growth, accounting for 60% of the world's output.

"As the global economy starts to pick up, uncertainty will become a key theme for investors in 2017," the ADB said.

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