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ADB released Asian Development Outlook 2015

Mar 27, 2015 16:16 IST

The Asian Development Bank (ADB) released the Asian Development Outlook (ADO) on 24 March 2015. The report is titled Financing Asia’s Future Growth.

The ADO report projected that India will overtake China in terms growth rate in Financial Year (FY) 2015, and 2016.

India is forecasted to grow at the rate of 7.4 percent in FY 2014, 7.8 percent in FY 2015 and 8.2 percent in 2016 compared to China’s growth rate of 7.4 percent in FY 2014, 7.2 percent in FY 2015 and 7.0 percent in FY 2016.

Main Highlights of the ADO 2015
• Developing Asia will grow at a steady 6.3percent in 2015 and 2016—the same pace as 2014.
• Driven by the fall in oil prices, Inflation will slow from 3.1 percent in 2014 to 2.6 percent in 2015. As oil prices gradually rebound, inflation will pick up to 3.0 percent in 2016.
• Driven by the growth in the United States (US), the major industrial economies are collectively forecast to expand by 2.2 percent in 2015 and accelerate further to 2.4 percent in 2016.
• Weaker investment in real estates in China is expected to further curtail growth to 7.2 percent in 2015 and 7.0percent in 2016. China grew at a pace of 7.4 percent in 2014.
• The combined GDP of the 10 ASEAN economies is forecast to expand by 4.9 percent in 2015, lifted from 4.4 percent in 2014 by recovery in Indonesia and Thailand.
• Developing Asia has been the main source of global growth since the Financial Crisis in 2009. The region contributed 2.3 percentage points to global GDP growth, nearly 60 percent of the world’s annual 4.0 percent pace.
• The drop in commodity prices, for oil in particular, will enlarge developing Asia’s current account surplus by 0.2 percentage points to 2.5 percent of GDP in 2015.
• Asia has experienced rapid credit growth since the global financial crisis. From 2009 to 2013, proliferating bank loans and bonds in the 14 large economies of developing Asia almost doubled total domestic debt from 18.3 trillion US dollars to 34.1 trillion US dollars.

Dangers to growth in the Asian region
• Reversals in an otherwise supportive environment could dampen growth. If China falters as it adjusts to its new normal, or if India reforms less decisively than anticipated, their slower growth could spill over to others in developing Asia.
• Outside the region, the Greek debt crisis and deepening recession in the Russian Federation may have global consequences.
• The impending rise in US interest rates may reverse capital flows to the region, requiring monetary responses to maintain stability.
• The benefits flowing from the low price of crude oil could evaporate if geopolitical tensions push it sharply higher.

Recommendations for financing Asia’s growth
• Financial stability must be maintained to enhance growth and equity.
• A sound, efficient, and well-regulated financial system can help sustain the region’s growth momentum without jeopardizing stability.
• An inclusive financial system that broadens access to finance is a cornerstone of more inclusive growth.
• Macroprudential policy can be applied to directly tackle excessive credit to certain sectors.
• Capital built by long-term finance is vital for productivity growth and innovation. Bond market development in particular deepens the pool of long-term financing
• The approach to developing the financial sector must fit each country’s circumstances.
• Foreign direct investment and diverse foreign funding can cushion external financial shocks.

ADO and India
The initial phase of the Indian government’s effort to remove structural bottlenecks is lifting investor confidence. With the support of stronger external demand, India is set to expand by 7.8 percent in FY2015 (ending 31 March 2016), a sharp uptick from 7.4 percent growth recorded in FY2014.

This momentum is expected to build to 8.2 percent growth in FY2016, aided by the expected easing of monetary policy in 2015 and a pickup in capital expenditure.

 

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