ADB sticks to Asia growth forecasts on China, India strength; lowers Singapore outlook

A man cycles past a billboard showing an aerial view of Shanghai.
A man cycles past a billboard showing an aerial view of Shanghai.PHOTO: AFP

MANILA (REUTERS) - The Asian Development Bank kept its growth estimates for developing Asia for this year and next at 5.7 per cent, saying sustained expansion in China and India can steady the region but warned of risks from a looming US interest rate hike.

ADB cut its 2016 growth estimate for Singapore to 1.8 per cent from 2.0 per cent in its March outlook. The forecast for 2017 growth was lowered to 2.0 per cent from 2.2 per cent.

The Manila-based lender increased its growth forecast this year for China to 6.6 per cent from 6.5 per cent and for 2017 to 6.4 per cent from 6.3 per cent, citing fiscal and monetary stimulus measures in the world's second-largest economy.

The projections for India were kept at 7.4 per cent for this year and 7.8 per cent for 2017, driven by strong consumption and an investment revival, the ADB said in an update on Tuesday (Sept 27) of its Asian Development Outlook released in March.

"Strong growth in China and India is helping the region maintain its growth momentum," said Juzhong Zhuang, ADB deputy chief economist.

"Still, policymakers need to watch for downside risks including potential capital reversals that could be triggered by monetary policy changes in advanced economies, especially the US," said Zhuang.

The possibility of a US interest rate hike could disrupt capital flows and complicate macroeconomic management in the region, the bank said.

"Private debt is on the rise in many Asian economies, which could become unsustainable if economies struggle or interest rates rise sharply," ADB said.

The US Federal Reserve left interest rates unchanged last week but strongly signaled it could still tighten monetary policy by the end of the year if the labour market keeps improving. The Fed has two more meetings this year.

In December 2015, the Fed raised US interest rates for the first time in nearly a decade.

Citing a continued delayed recovery among industrial economies, the ADB reduced its aggregate growth forecast for the US, Japan and the euro area by 0.4 percentage points to 1.4 per cent for 2016, before seeing it pick up to 1.8 per cent next year.

The upward revision in ADB's estimate for China lifted its forecast for all of East Asia to 5.8 per cent from 5.7 per cent for 2016 while the 2017 projection was unchanged at 5.6 per cent.

In the first half of this year, China's economy grew 6.7 per cent from a year earlier, slowing from a 6.9 per cent pace in all of 2015.

The growth estimate for Southeast Asia was kept at 4.5 per cent for this year, which the ADB said was supported by first-half strength in the Philippine and Thai economies. But it cut its 2017 forecast for the region to 4.6 per cent from 4.8 per cent in its March outlook.