ADB: Growth holding up in Asia, Pacific region

Strong domestic demand is still driving the largest economies

MANILA - Growth across developing Asia has so far held up against external headwinds mainly due to robust domestic demand and buoyant oil and gas prices, said a new Asian Development Bank (ADB) report released on Wednesday.

The updated Asian Development Outlook (ADO) 2018, ADB's flagship annual economic publication, predicts that the region's gross domestic product will still grow at 6 percent in 2018. However, the projection for 2019 has been trimmed by 0.1 percentage points to 5.8 percent.

"Growth in the region has held up to external challenges, helped by strong domestic demand in China and India," said ADB chief economist Yasuyuki Sawada.

"The biggest risk to continued growth comes from the disruption of international production linkages caused by a further escalation of trade tensions, but Asia's growth should remain resilient to the direct effects of the trade measures taken to date."

Sawada said strong domestic demand is driving the region's largest economies, while buoyant prices for oil and gas are fueling growth at energy-exporting countries like Kazakhstan.

Tightening global liquidity could also further cloud prospects over the coming year.

Excluding Asia's newly industrialized economies, the ADB predicts the region to expand by 6.5 percent this year and 6.3 percent in 2019.

Sawada said downside risks to the outlook are intensifying. "Any escalation of the trade conflict could disrupt cross-border production links. If tightened more than investors expect, US monetary policy could accelerate capital outflow from Asian economies and put further depreciation pressure on regional currencies," Sawada said.

Indeed, Sawada said most economies remain robust, but policy makers must be ready to respond.

The report says industrial economies' growth will reach 2.3 percent in 2018 and 2.0 percent in 2019, maintaining the April 2018 forecast.

It says the consumer spending and job creation is driving strong growth in the United States. However, it says that recovery in the euro area and Japan was sluggish early in the year, prompting slight downward revisions to their 2018 growth projections.

The US is expected to normalize monetary conditions further to pre-empt inflation, added the report.

The report said that solid domestic consumption and rapid expansion of services helped to deliver strong economic performance in China over the first half of the year.

Robust path

According to the report, India's economy continues on a robust growth path. "Its growth forecasts are unchanged at 7.3 percent for 2018 and 7.6 percent for 2019 as the temporary effects of the demonetization of large bank notes and the introduction of the national goods and services tax abate as expected," the report says.

The report says that growth is moderating in six of the 10 economies of Southeast Asia, which is now expected to grow by 5.1 percent in 2018, a drop of 0.1 percentage points from the previous forecast.

"Net exports moderated growth in Indonesia, the Philippines, Thailand and Vietnam as imports surged to support government infrastructure investments. Growth should register 5.2 percent in 2019, consistent with the April 2018 forecast, though downside risks have intensified," the report predicted.

The report saw higher prices for oil and natural gas, coupled with rising exports and investment driving slightly higher growth in Central Asia, which is expected to hit 4.1 percent this year.

Conversely, the report predicted the Pacific to expand by just 1.1 percent, half the previous forecast, due to disruptions from an earthquake in Papua New Guinea and public spending shortfalls in Timor-Leste.

While some economies, particularly in Southeast Asia, could gain over the medium term as trade is redirected to them, the report says indirect fallout could lower confidence and investment throughout the region.

Xinhua

(China Daily 09/27/2018 page11)