Weaker growth in China this year is expected to cause a slowdown in
the rest of Asia, the Asian Development Bank said Tuesday as it became
the latest major body to revise down its forecasts for the world's
number two economy.
It also warned central banks to prepare for an expected Federal
Reserve interest rate rise, with many nations already seeing huge
capital outflows as dealers look for safer US investments.
The report comes as markets have been hit by extreme volatility
driven by fears over the Chinese economy -- and its leaders' management
of it -- after last month's surprise devaluation of its yuan currency.
"The combination of a moderating prospect in China and India,
together with delayed recovery of advanced countries, weighed on our
forecast for the region as a whole," said ADB Chief Economist Shang-Jin
Wei, who presented the report at the Foreign Correspondents' Club in
Hong Kong.
In an update to its flagship Asian Development Outlook released in
March, the Bank said growth in the region would hit 5.8 percent this
year and 6.0 percent in 2016. March's forecast was for 6.3 percent for
both years.
Inflation in the developing Asia region was forecast to ease further, partly due to lower global commodity prices.
Wei said that the overall outlook for the region was "still positive"
but had been impacted by capital flow reversals and weakened commodity
prices for exporters, partly related to the China slowdown.
"Developing Asia is expected to continue to be the largest
contributing region to global growth despite the moderation," he added.
However, it tipped China -- the main driver of global economic growth
-- to expand 6.8 percent this year, instead of the 7.2 previously
estimated, following a stream of weak indicators including on trade,
inflation, investment and consumer spending.
The ADB predicted growth rate would be the slowest since 1990, a year
after the Tiananmen Square crackdown that led to global sanctions
against Beijing. It is also below China's official target for the year
of "about" 7 percent.
But Wei said talk of a collapse in Chinese growth was "overblown".
"Consumption growth continues to look relatively strong. Retail sales
look relatively resilient... job market employment looks relatively
resilient," he said. Wei added that stocks volatility was unlikely to
have a long-lasting effect on growth.
It added that Southeast Asia was bearing the brunt of China's
slowdown, with growth in Southeast Asia this year put at 4.4 percent,
before rising to 4.9 percent in 2016.
Jurgen Conrad, head of the ADB's economic unit, told reporters in
Beijing that the revision was "mainly due to the delayed recovery in
industrial countries reducing export demand".
Last week the OECD cut its 2015 growth forecast for China by 0.1 percentage points to 6.7 percent.
Forecasts for India were also lowered to 7.4 percent from 7.8
percent, weighed by the slow pace of reform by the new government and
weak external demand, the report said.
The ADB urged regional central banks to move now on monetary policy
to prepare for a US rate hike, which Fed chief Janet Yellen has said
will come before the end of the year.
"To counter the impacts of a US rate rise, monetary policy
authorities in developing Asia will need to find a balance between
stabilising the financial sector and stimulating domestic demand," the
report warned.
