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Outlook across most of Asia continues to brighten: ADB

ADB's chief economist says there are downsides, but most economies can weather potential short-term shocks

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Labourers at a fruit and vegetable market in Chennai. The ADB noted that activity is picking up in two-thirds of the economies in developing Asia, making the region the largest single contributor to global growth.

Tokyo

ECONOMIC prospects continue to improve across most of Asia, despite threats to global trade from policies in advanced economies and concerns over possible capital outflows from the region, the Asian Development Bank (ADB) said on Thursday.

But the bank's recently appointed chief economist Yasuyuki Sawada said he believes most economies are ready to face these risks.

Speaking at the launch of the latest edition of the ADB's Asian Development Outlook, he said: "While uncertain policy changes in advanced economies do pose a risk to the outlook, we feel that most economies are well positioned to weather potential short-term shocks."

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The ADB's generally upbeat take on short- to medium-term prospects for the Asia-Pacific echoes that of other leading multilateral agencies.

International Monetary Fund (IMF) director of the Asia and Pacific Department Changyong Rhee, for example, told The Business Times this week: "The outlook for the Asia-Pacific region remains robust - and globally the strongest - and recent data points to a pickup in momentum."

Meanwhile, the ADB noted on Thursday that activity is picking up in two-thirds of the economies in developing Asia, supported by higher external demand, rebounding global commodity prices and domestic reforms, making the region the largest single contributor to global growth.

The ADB report suggested that although growth across the Asia-Pacific as a whole is projected to slow to 5.7 per cent from 5.8 per cent last year, it should remain stable through next year.

Behind this year's projected slight decrease in Asia-Pacific growth is the fact that China's growth continues to moderate.

"Overall output is expected to slow to 6.5 per cent in 2017 and 6.2 per cent in 2018, down from a forecast 6.7 per cent this year."

Meanwhile, South Asia remains the fastest growing sub-region; its growth will hit 7 per cent this year, and 7.2 per cent next year.

"In India, the sub-region's largest economy, growth is expected to pick up to 7.4 per cent in fiscal year 2017 and 7.6 per cent in 2018, following the 7.1 per cent registered last year."

Overall growth in South-east Asia is meanwhile forecast to accelerate; nearly all economies in the region show an upward trend, the ADB said.

"The sub-region will grow 4.8 per cent in 2017 and 5 per cent in 2018, from the 4.7 per cent recorded last year. Commodity producers such as Malaysia, Vietnam and Indonesia will be boosted by the recovery of global food and fuel prices."

Major industrial economies are meanwhile gathering growth momentum, the ADB noted, with the US, the euro area and Japan expected to collectively grow by 1.9 per cent this year and the next.

"Rising consumer and business confidence and a declining unemployment rate have fuelled US growth, but uncertainty over future economic policies may test confidence."

The euro area continues to strengthen, but its outlook is somewhat clouded by uncertainties such as Brexit. Meanwhile, Japan remains dependent on its ability to maintain export growth to continue its expansion, said the ADB report.

Risks to the Asian regional outlook include higher US interest rates, which, the ADB suggested, will accelerate capital outflows, although this risk is mitigated to some degree by abundant liquidity throughout the region.

The report also predicted that the effects of US monetary policy tightening will materialise only gradually, giving governments in Asia and the Pacific time to prepare adequately for it.

Portfolio investment flows into Asia reached an unexpectedly high level of almost US$58 billion in the first quarter of 2017, in contrast to an outflow in the final quarter of last year, noted Hung Tran, executive managing director at the Institute of International Finance in Washington told BT this week.

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