Asian Development Bank Trims Asia Growth Forecast Over China Slowdown Concerns

Growth across Asia’s developing economies is expected to stall over the next two years, as they continue to reel under the effects of a slowdown in China, the Asian Development Bank said in a report released Wednesday. For 2016 and 2017, the ADB forecast a gross domestic product (GDP) growth of 5.7 percent in the region, down from 5.9 percent last year.

“PRC’s [People’s Republic of China] growth moderation and uneven global recovery are weighing down overall growth in Asia,” Shang-Jin Wei, ADB’s chief economist, said in a statement accompanying the report. “Despite these pressures, the region will continue to contribute over 60 percent of total global growth. Countries across the region should continue to implement productivity-enhancing reforms, investment in under-supplied ‎infrastructure, and sound macroeconomic management to help increase their growth potential and insulate themselves from global instability.”

For instance, in China, where the government has begun to shift gears toward consumption and services, away from manufacturing and exports, ADB forecast a GDP growth of 6.5 percent in 2016 and 6.3 percent in 2017. The 2017 estimate falls below the “new normal” previously announced by Chinese President Xi Jinping, who pledged that the country’s growth rate over the next five years will not be less than 6.5 percent.

“Weak external demand and excess capacity in some sectors, on top of a shrinking labor force and rising wages, ‎continue to induce a gradual decline in the PRC's growth rate,” Wei said. “Supply-side reforms, including improving labor market flexibility, are needed to improve the economy's resilience to negative shocks and raise its potential growth.”

Economic growth in Asia as whole has been hurt by cooling demand for exports. This, the ADB said, is likely to continue this year, when GDP growth in industrial economies in Asia remains at 1.8 percent, and in 2017, when it is likely to increase slightly to 1.9 percent.

Growth in India, meanwhile, will remain a silver lining. The country — one of the world’s fastest-growing emerging economies — will witness a GDP growth of 7.4 percent in 2016, a slight dip from the previous year’s 7.6 percent. In 2017, the growth is expected to accelerate to 7.8 percent.

“India’s economy expanded by 7.6 percent in 2015 as strong public investment boosted growth, despite weak exports,” ADB said in its report. “Reforms geared to attract more foreign direct investment and stronger corporate and bank balance sheets will help maintain growth momentum.”