ADB: Asian growth seen steady, U.S. policy uncertainty a risk

ADB: Asian growth seen steady, U.S. policy uncertainty a risk”

Quoting high growth projections for India due to expected revival in consumption and investment post demonetisation, Asian Development Outlook 2017 (ADO), a study published by ADB, sees India as Asia's engine of growth in the coming years.

In its "Asian Development Outlook 2017", the ADB forecasts growth of gross domestic product in the Asia-Pacific region to reach 5.7 per cent in 2017 and 2018, a slight deceleration from the 5.8 per cent registered in 2016.

"Along with the forthcoming implementation of the Goods and Services Tax (GST), demonetisation will widen the tax net and improve tax compliance", ADB's flagship economic publication Asian Development Outlook 2017 noted.

The Manila, Philippines-based lender forecast growth in developing Asia at 5.7 percent in 2017 — unchanged from its previous forecast — and said that pace would continue into 2018.

Meanwhile, China's growth forecast has receded from 6.7% in 2016 to 6.5% in 2017, further declining to 6.2% in 2018 as per the predictions by ADB.

India's growth is expected to hit 7.4 percent in 2017 and 7.6 percent in 2018.

"Even as growth moderates, rising worldwide prices for oil should nudge domestic inflation up to 3.5 percent this year and 3.7 percent next year", said ADB, noting that the rate increased in January and February to the three-percent level because of higher fuel prices and public transportation fares. Exports continued to decline in the third consecutive years due to waning global demand and weak worldwide commodity prices as well as domestic structural issues, such power outages and lack of investment in modernisation and currency appreciation in real effective terms.

However, the risks include unexpected changes to USA government policies in areas such as interest rates.

The ADB forecast that remittances will decline by 7 percent in this fiscal year and 4 percent in the next fiscal year as global oil prices start rising. "A continued commitment to reform ~ especially in the banking sector ~ will help India maintain its status as the world's fastest growing major economy", Sawada observed.

The Federal Reserve hiked U.S. rates a notch in mid-March, its second tightening in three months. "The biggest contributor to growth is investment, both public and private, exceeding the growth contribution from consumption", ADB country director Richard Bolt said in a statement.

Higher growth in FY18 reflects accelerated infrastructure investment through the China-Pakistan Economic Corridor (CPEC), which is steadily lifting consumer and investor confidence and thereby further catalysing economic activity. Economies with flexible exchange rates may experience deeper currency depreciation and subsequent higher inflation, while managed currencies will tend to forfeit export price competitiveness.

"Philippines, I think, is more resilient than other countries in Southeast Asia because the Philippines fundamentally is not export-driven economy".

The ADB economists, likewise, stressed that the country's strong macroeconomic fundamentals have consistently shielded the economy from external risks and vulnerability in the past five years.

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