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ADB cuts growth forecast for Asia to 6pc as China and India slow

The Sydney News.Net Wednesday 2nd October, 2013

HONG KONG - The Asian Development Bank (ADB)Wednesday cut its outlook for developing Asia by 0.6 percent to 6 percent for 2013., citing slower growth in China and India and concerns over the US scaling down a key stimulus measure.


Speculation over the US scaling back the quantitative easing (QE) programme - a $85 billion-a-month bond-buying stimulus measure, has seen many investors pull out money from the region.

"Asia and the Pacific 2013 growth will come in below earlier projections due to more moderate activity in the region's two largest economies and effects of QE nervousness," said ADB Chief Economist Changyong Rhee releasing here an update of multilateral bank's flagship annual economic report, Asian Development Outlook 2013.

"While economic activity will edge back up in 2014, current conditions highlight the need for the region to exercise vigilance to safeguard financial stability in the short term while accelerating structural reforms to sustain economic growth in the longer term."

Scaling down its growth expectation for the 45-nation region from the forecast of 6.6 percent in April, ADB now expects 6 percent growth for 2013 and for the next year 6.2 percent down from 6.7 percent projected in April. In 2012, growth came in at 6.1 percent.

The ADB said that the sudden outflow of capital from emerging markets, triggered by shifting expectations concerning the timing of the wind-back of the US Federal Reserve's quantitative easing program, has exposed vulnerabilities in the region.

The bank has however reassured that there is no crisis afoot given the solid current account surpluses and ample foreign exchange reserves in most of the region's developing economies. Nevertheless, the capital flow volatility like this underscores the need to closely monitor financial markets, it added.

"The region is well positioned to weather the financial storm expected when Washington begins winding back its quantitative easing program," the report stated.

Although the prospect of an end to US stimulus has disturbed financial markets in emerging economies, "fears of a meltdown like the 1997 Asian financial crisis are misplaced," the ADB said.

The Chinese economic growth is expected to moderate to 7.6 percent in 2013 from 7.7 percent last year. This was weaker than 8.2 percent growth projected in April. The GDP growth outlook for 2014 was also downgraded to 7.4 percent from 8 percent previously.

China, Asia's largest economy, has seen its growth hit by a decline in demand for exports from key markets such as the US and Europe.

Its growth rate has slowed for two quarters in a row.

The report noted that China is experiencing moderation in growth due to recent efforts to reign in credit and the booming shadow banking system, as the authorities sought to redirect the economy along a more sustainable medium-term growth path.

In India's case, the growth is forecast to slow to 4.7 percent in the financial year 2013 from 5 percent in fiscal 2012, while in fiscal 2014, growth is expected to pick up to 5.7 percent. Both projections are weaker than ADB's earlier forecasts of 6 percent, and 6.5 percent growth for fiscal 2013 and 2014 respectively.

The deceleration in India's economic growth reflected the ongoing industry and investment bottlenecks stemming from poor infrastructure and delayed structural reforms, the report stressed.

The ADB warned that Southeast Asia's growth will be crimped by the soft performances of its three biggest economies with lackluster exports and moderating investment weighing on Indonesia, Thailand and Malaysia.

By contrast the Philippines is expected to continue to perform strongly. The sub-region will grow 4.9 percent in 2013, with the pace set to quicken to 5.3 percent in 2014, as it benefits from an investment recovery and firmer exports, supported by improved global trade and recent currency depreciations.

Central Asia, meanwhile, is projected to see growth decelerate to 5.4 percent in 2013 on slower-than-expected economic activity in Kazakhstan and Georgia, before recovering to 6.0 percent in 2014.

The Pacific sub-region is forecast to post growth of 5.2 percent and 5.5 percent in 2013 and 2014, unchanged from the April ADO 2013 estimates.

Expectations for increased consumption and investment in Fiji, and higher tourist arrivals in the Cook Islands, are largely offset by lower growth projections for Kiribati, Nauru, Solomon Islands, and Timor-Leste.

The slowing growth "highlights the need to push ahead with overdue reforms in areas like foreign direct investment, infrastructure development, fiscal consolidation and social protection programmes" in the region's economies, the report stated

It said that these reforms were key to sustaining the long-term growth of the region.

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