HONG KONG, CHINA – Developing Asia will extend its steady economic growth in 2014 as higher demand from recovering advanced economies will be dampened somewhat by moderating growth in the People’s Republic of China (PRC), says a new Asian Development Bank (ADB) report.
ADB’s flagship annual economic publication, Asian Development Outlook 2014 (ADO), released today, forecasts developing Asia will achieve gross domestic product (GDP) growth of 6.2% in 2014, and 6.4% in 2015. The region grew 6.1% in 2013.
“Developing Asia is successfully navigating a challenging global economic landscape and is well positioned to grow steadily over the next two years,” said ADB President Takehiko Nakao. “Risks to the outlook have eased compared to the recent past, and policy makers in the region can manage them. At the same time, countries should continue to make every effort to pursue sound macroeconomic policies and needed structural reforms.”
Two broad trends shape the outlook. Demand for Asia’s output is expected to grow as the recovery in the major industrial economies gains momentum. Combined GDP growth in the United States, the euro area, and Japan is expected to pick up to 1.9% in 2014 from 1.0% in 2013 before strengthening further to 2.2% in 2015.
The improvement in demand will be offset somewhat by moderating growth in the PRC where the economy slowed to 7.7% in 2013 on impacts from tightened credit growth, pared industrial overcapacity, deepening local government debt, rising wages, currency appreciation, and the continuing shift in the government’s development priorities away from quantity toward quality. These factors persist and PRC growth is forecast to slow to 7.5% in 2014 and 7.4% in 2015.
While risks to the outlook have eased, three areas warrant close monitoring. First, if efforts in the PRC to curb credit expansion are too abrupt and excessively undermine growth, a deeper slowdown could drag down prospects for its trade partners. Second, data on the recovery in the major industrial economies have been mixed; pointing to the possibility that demand for the region’s goods from these countries may be softer than envisaged. And third, a further shock to global financial markets from changes in US monetary policy cannot be ruled out.
Across the subregions, East Asia will see its growth trend flatten as growth moderates in the PRC. East Asia grew by 6.7% in 2013, a slight uptick from 2012, and is expected to maintain that rate into 2014 and 2015. The slower growth in PRC will offset upswings in the newly industrialized economies of the Republic of Korea; Hong Kong, China; and Taipei,China. As policies tighten to curb inflation, growth in Mongolia will moderate in 2014 and remain broadly stable in 2015. Inflation in East Asia hit a 4-year low of 2.4% in 2013 and will remain manageable at 2.5% in 2014 and 2.9% in 2015.
Although growth in South Asia is inching up, it remained the slowest growing subregion, with GDP expanding by 4.8% in 2013. Moderation in India had an outsized impact on the subregional average. Growth is forecast to improve to 5.3% in 2014 and 5.8% in 2015, with projected recovery in India to 5.5% and 6.0%, assuming the implementation of long-delayed structural reforms.
Growth patterns in Southeast Asia will be dominated by country factors. Subregional GDP decelerated to 5.0% in 2013 as soft export markets and slowdowns affected Indonesia, Thailand, and Malaysia. Growth in Indonesia, the biggest of these economies, was dampened by policies the government adopted to subdue inflation after it sharply raised fuel prices. Subregional growth is forecast to be similar in 2014, as gains from better export markets are offset by moderating domestic demand. The outlook improves to 5.4% in 2015, with growth picking up in Indonesia after inflation ebbs, and Thailand’s economy rebounding if political disruption recedes.
Central Asia, meanwhile, should maintain its growth pace as its largest economy boosts public spending. Unexpectedly strong performance in Kazakhstan, which accounts for nearly half of subregional GDP, and sharp gains in Azerbaijan and the Kyrgyz Republic raised Central Asia’s growth rate by nearly a percentage point to 6.5% in 2013. The subregion is forecast to maintain this rate through 2015, though tensions arising from events in Ukraine pose downside risk. Inflation in Central Asia is projected to accelerate sharply to 9.0% in 2014, reflecting currency devaluation in Kazakhstan, the Kyrgyz Republic, and Tajikistan, and higher growth in Georgia and Turkmenistan.
The Pacific will rebound as natural gas production in its largest economy drives growth. GDP growth slowed in the Pacific for the second consecutive year, falling to 4.8% in 2013 as construction on the liquefied natural gas project in Papua New Guinea (PNG)—the subregion’s predominant economy—wrapped up. The commencement of gas exports in late 2014 and the first full year of production in 2015 will boost growth in PNG and the subregion in aggregate through the forecast period. Subregional GDP growth is projected to reach 5.4% in 2014 before skyrocketing on PNG gas exports to 13.3% in 2015.