HONG KONG • Malaysia and Hong Kong are proving to be the biggest growth surprises in Asia.

The two nations received the largest upgrades for this year among major economies in the latest outlook released by Asian Development Bank (ADB) yesterday.

Meanwhile, India received the steepest downgrade.

The global trade recovery is helping to boost exports in Hong Kong and Malaysia while demonetisation and the implementation of the new goods and services tax regime in India have dented consumer spending and business investment.

ADB raised Malaysia's growth forecast for this year to 5.4 per cent from 4.7 per cent previously in July, while for Hong Kong, growth is expected to hit 3.6 per cent, up from its 2 per cent forecast in July.

India's economy is seen recovering in fiscal year 2018 but with a slashed expansion forecast at 7 per cent, from 7.4 per cent previously.

As a whole, the outlook for developing Asia is robust even as risks remain, including sudden changes in United States monetary policy and geopolitical or weather-related disasters.

The unwinding of stimulus in the US "may drain capital from the region, which would challenge Asia's financial stability," according to the report.

Higher bond yields could push up long-term financing costs at the same time that a strengthening US dollar would prompt more capital outflows from the region.

The ADB advised that government officials should monitor debt levels and asset prices while strengthening their financial positions.

In economies like Indonesia, Malaysia, Thailand and Taiwan, there is room for accomodative policy, it said.

In the Philippines and South Korea, the case for stimulus may be less clear because the growth upturn is protracted and price pressures are intensifying.

The region should embark more aggressively on building infrastructure, including through public-private partnerships, the ADB said.

BLOOMBERG