MANILA: Developing Asia is expected to post steady growth this year and the next, but a likely return to an upward cycle in US rates later this year may merit policy action to counter a reversal of capital flows, the Asian Development Bank (ADB) said.

Developing Asia, which groups 45 countries in Asia-Pacific, is set to grow 6.3 per cent this year and the next, the same pace as in 2014. India and most Southeast Asian economies will lead the way, offsetting slowing growth in China, the Manila-based bank said in its latest Asian Development Outlook report.

The region accounts for nearly three-fifths of the world’s annual GDP growth since the global financial crisis of 2009, it said.

“Soft commodity prices and recovery in the major industrial economies generally aid the region’s growth momentum. The expected pickup in India and in most members of the Association of Southeast Asian Nations could help balance gradual deceleration in the region’s largest economy, the People’s Republic of China,” the ADB said.

Growth in China is poised to cool from 7.4pc last year to 7.2pc this year and 7pc next year, the bank said, as authorities in the region’s biggest economy make reforms in the face of a property downturn, factory overcapacity, and rising local debt.

“If the PRC (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,” the bank said in its report.

India’s economic growth is forecast to accelerate 7.8pc this year from actual growth of 7.4pc in 2014, a sharp increase from the ADB’s December estimate of 6.3pc growth, as the bank expects a rise in investments following reforms aimed at overcoming long-standing structural inefficiencies.

Rapid credit growth, with bank loans and bonds in the region’s 14 largest economies nearly doubled to $34.1 trillion in five years to 2013, supporting growth in the region.

However, combined with surging capital inflows, it poses risks to asset prices, the bank said, adding appropriate macro-prudential policy could directly tackle excessive credit to certain sectors.

Lower global oil prices were feeding global growth, particularly in developing Asia, but a sudden sharp reversal would have a stronger impact in the region than elsewhere, the ADB said. Monetary easing in Asia could soften the blow to output, should oil prices spike.

Economies in the region should take advantage of the current low oil price regime to pursue structural reforms such as eliminating fuel subsidies or raising fuel taxes to ease the burden on their public finances, the bank said.

Published in Dawn March 25th , 2015

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