Developing Asia will extend its steady economic growth into 2014 and 2015 as risks grow less threatening and demand from recovering advanced economies is set to rise, predicts a new Asian Development Bank (ADB) report.
ADB’s flagship annual economic publication, “Asian Development Outlook 2014,” forecasts developing Asia to achieve gross domestic product (GDP) growth of 6.2 percent in 2014, and 6.4 percent in 2015. The region grew 6.1 percent in 2013.
“Developing Asia is successfully navigating a challenging global economic landscape and is well positioned to grow steadily over the next two years,” said ADB president Takehiko Nakao. “Risks to the outlook have eased compared to the recent past, and policy makers in the region can manage them.”
At the same time, he urged the countries to continue pursuing sound macroeconomic policies and needed structural reforms to sustain their progress.
Two broad trends shape the outlook, noted the report. Demand for Asia’s output is expected to grow as the recovery in the major industrial economies gains momentum. Combined GDP growth in the United States, the Euro area, and Japan is expected to pick up to 1.9 percent in 2014 from 1 percent in 2013 before strengthening further to 2.2 percent in 2015.
The improvement in demand will be offset somewhat by moderating growth in China, where the economy slowed to 7.7 percent in 2013 on impacts from tightened credit growth, pared industrial overcapacity, deepening local government debt, rising wages, currency appreciation, and the continuing shift in the government’s development priorities away from quantity toward quality. China growth is forecast to slow to 7.5 percent in 2014 and 7.4 percent in 2015.
While risks to the outlook have eased, three areas warrant close monitoring, continued the report. These are a deeper slowdown in China’s growth that could drag down prospects for its trade partners, a slower-than-forecast recovery for the major industrial economies that could soften demand for Asian goods, and a further shock to global financial markets from changes in U.S. monetary policy.
By sub-region, East Asia will see its growth flatten in reaction to China’s slowdown. East Asia grew by 6.7 percent in 2013, a slight uptick from 2012, and is expected to maintain that rate into 2014 and 2015. The slower growth in mainland China will offset upswings in the newly industrialized economies of South Korea, Hong Kong, and Taiwan.
Although growth in South Asia is inching up, it remained the slowest growing sub-region, with GDP expanding by 4.8 percent in 2013. Moderation in India had an outsized impact on the sub-regional average. Growth is forecast to improve to 5.3 percent in 2014 and 5.8 percent in 2015.
In Southeast Asia, GDP decelerated to 5 percent in 2013 as soft export markets and slowdowns affected Indonesia, Thailand, and Malaysia. Sub-regional growth is forecast to be similar in 2014, as gains from better export markets are offset by moderating domestic demand. The outlook improves to 5.4 percent in 2015, with growth picking up in Indonesia after inflation ebbs, and Thailand’s economy rebounding if political disruption recedes.
Central Asia, meanwhile, should maintain its growth pace as its largest economy boosts public spending. Unexpectedly strong performance in Kazakhstan, which accounts for nearly half of sub-regional GDP, and sharp gains in Azerbaijan and the Kyrgyz Republic raised Central Asia’s growth rate by nearly a percentage point to 6.5 percent in 2013. The sub-region is forecast to maintain this rate through 2015.
The Pacific will rebound as natural gas production in its largest economy drives growth. GDP growth slowed in the Pacific for the second consecutive year, falling to 4.8 percent in 2013 as construction on the liquefied natural gas project in Papua New Guinea—the sub-region’s predominant economy—wrapped up. Sub-regional GDP growth is projected to reach 5.4 percent in 2014 before skyrocketing on Papua New Guinea’s gas exports to 13.3 percent in 2015.
Photo: mark taylor