ADB cuts Asia growth forecast for 2016 on China, global drag

[MANILA] The Asian Development Bank slashed its economic growth forecast for developing Asia this year, citing global headwinds and a weaker outlook for China.

Developing Asia will expand 5.7 per cent this year and in 2017, the Manila-based lender said in its latest Asian Development Outlook released on Wednesday.

In its December outlook report, the ADB had forecast 2016 growth for the region at 6.0 per cent.

The region, which groups 45 countries in the Asia Pacific, grew 5.9 per cent last year.

"Risks are tilted to the downside as tightening U.S. monetary policy may heighten financial volatility, further moderation in China could spill over into its neighbors, and producer price deflation may undermine growth in some economies," said ADB chief economist Shang-Jin Wei.

The ADB forecast growth in China, the world's second-largest economy, would slow to 6.5 per cent this year from 6.9 per cent in 2015, its weakest expansion in a quarter of a century. Growth is projected to slow further to 6.3 per cent in 2017, ADB said.

The bank's 2016 forecast for China, down from a December estimate of 6.7 per cent, is at the lower end of Beijing's own target of 6.5-7 per cent as the government presses ahead with painful reforms, though Premier Li Keqiang has vowed that would not lead to a hard landing.

Weak prices for oil and other commodities also cast a shadow over the prospects of Asia's commodity-dependent economies, the ADB said.

In the United States, expanding private consumption and investment will be tempered by weak external demand, the ADB said. U.S. Federal Reserve policymakers have cited continuing risks from a shaky global economy in halving the number of potential interest rate hikes this year to two.

Growth in India will slip to 7.4 per cent this year from 7.6 per cent in 2015, but should recover to 7.8 per cent in 2017, the ADB said.

For all of South Asia, ADB forecast growth at 6.9 per cent in 2016 and 7.3 per cent in 2017, versus growth of 7.0 per cent last year.

Economies in Southeast Asia are projected to expand 4.5 per cent this year, from 4.4 per cent in 2015, and by 4.8 per cent in 2017.

For East Asia, ADB sees growth at 5.7 per cent in 2016 and 5.6 per cent in 2017. The region grew 6.0 per cent last year.

Central Asia is estimated to expand by 2.1 per cent this year and 2.8 per cent in 2017, following growth of 2.9 per cent in 2015, the bank said.

Annual inflation in developing Asia is expected to recover to 2.5 per cent this year from 2.2 per cent in 2015 as domestic demand strengthens, ADB said. A rebound in global commodity prices next year should lift inflation to 2.7 per cent, it said.

REUTERS