ADB keeps Asia 2017 growth outlook at 5.9% but flags risks from Fed unwinding

Developing Asia is expected to grow by 5.9 and 5.8 per cent in 2017 and 2018, respectively.
Developing Asia is expected to grow by 5.9 and 5.8 per cent in 2017 and 2018, respectively. PHOTO: ST GRAPHICS

MANILA (REUTERS) - Developing Asia is on track to grow faster this year and next, the Asian Development Bank said on Tuesday (Sept 26), buoyed by a pick-up in world trade and China's expansion, but it flagged risks from tightening US monetary policy.

Developing Asia is expected to grow by 5.9 and 5.8 per cent in 2017 and 2018, respectively, the Manila-based lender said.

That is unchanged from its July estimates, but higher than the 5.7 per cent forecast it gave for both years in its Asian Development Outlook (ADO) released in April.

China is expected to grow 6.7 per cent this year and 6.4 per cent next year, the ADB said, unchanged from its July estimates.

"Growth prospects for developing Asia are looking up, bolstered by a revival in world trade and strong momentum in PRC(China)," ADB chief economist Yasuyuki Sawada in a statement after the bank updated its 2017 outlook.

Sawada said developing Asia should take advantage of favourable short-term economic prospects to invest in infrastructure, improve productivity and maintain sound economic policies to lift long-term growth.

However, the ADB trimmed its growth forecast for South Asia to 6.7 pe cent this year and 7.0 per cent next year, compared with estimates of 7.0 per cent and 7.2 per cent made in July.

India's growth was seen at 7.0 per cent and 7.4 per cent for this year and next, weaker than the July forecasts of 7.4 per cent and 7.6 per cent.

Southeast Asia's economy will grow 5.0 per cent this year and 5.1 per cent next year, stronger than July forecasts of 4.8 per cent and 5.0 per cent.

Still, the ADB said regional policymakers need to brace for potential capital outflows and higher borrowing costs as the Federal Reserve begins the unwinding of a decade of aggressive monetary stimulus and continues to raise interest rates.

"Because long-term interest rates in many Asian economies are closely linked to those in the US, policymakers need to strengthen their financial positions further and monitor debt levels and asset prices," the ADB said.

The ADB said Indonesia, Malaysia, Thailand and Taiwan could benefit from a boost in accommodative policy, but intensifying inflationary pressures make the case for stimulus in the Philippines and South Korea less clear.

Inflation in the region was forecast to be slightly slower at 2.4 per cent this year and 2.9 per cent next year, compared with the 2.6 per cent and 3.0 per cent estimated in July.