Developing Asia slowing amid global financial jitters

HONG KONG, China: Softer than expected economic activity in the People's Republic of China (PRC) and India and jitters over the United States (US) quantitative easing (QE) program will weigh on Asia and the Pacific's growth prospects in the near term, said a new Asian Development Bank (ADB) report.

"Asia and the Pacific 2013 growth will come in below earlier projections due to more moderate activity in the region's two largest economies and effects of QE nervousness," said ADB, Chief Economist, Changyong Rhee.

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"While economic activity will edge back in 2014, conditions highlight the need for the region to exercise vigilance to safeguard financial stability in the short term while accelerating structural reforms to sustain economic growth in the longer term."

In an update of its flagship annual economic publication, Asian Development Outlook 2013, (ADO 2013) released today, ADB revised its 2013 gross domestic product (GDP) growth forecast for the region to 6% from 6.6% seen in April. For 2014, growth is now projected at 6.2% from 6.7% in April. In 2012, growth came in at 6.1%.

Shifting expectations on the timing of the wind-back of the US Federal Reserve's QE program sparked the recent exodus of foreign capital from emerging markets, including India and Indonesia. While the sudden outflow of capital exposed vulnerabilities in the region, the report said fears of a crisis are unwarranted given the solid current account surpluses and ample foreign exchange reserves in most of the region's developing economies.

Capital flow volatility like this underscores the need to closely monitor financial markets.

At the same time, slowing growth highlights the need to push ahead with overdue reforms in areas such as foreign direct investment, infrastructure development, fiscal consolidation and social protection programs, to sustain growth for the long term.

Moderating growth in the PRC follows recent efforts to reign in credit and the booming shadow banking system, as the authorities seek to redirect the economy along a more sustainable medium-term growth path. The deceleration in India's economy reflects ongoing industry and investment bottlenecks stemming from poor infrastructure and delayed structural reforms.

Growth in East Asia is now expected to come in at 6.6% for 2013 and 2014, while in South Asia, GDP is seen to expand by 4.7% in 2013 and 5.5% in 2014, well below previous projections of 5.7% and 6.2%. Southeast Asia's growth will be crimped by the soft performances of its three biggest economies with lack-lustre exports and moderating investment weighing on Indonesia, Thailand and Malaysia.

By contrast, the Philippines is expected to continue to perform strongly. The sub-region will grow 4.9% in 2013, with the pace set to quicken to 5.3% in 2014, as it benefits from an investment recovery and firmer exports, supported by improved global trade and recent currency depreciations.

Central Asia will see growth decelerate to 5.4% in 2013 on slower-than-expected economic activity in Kazakhstan and Georgia, before recovering to 6.0% in 2014.

The Pacific sub-region will post growth of 5.2% and 5.5% in 2013 and 2014, unchanged from the April ADO 2013 estimates.

Expectations for increased consumption and investment in Fiji, and higher tourist arrivals in the Cook Islands, are largely offset by lower growth projections for Kiribati, Nauru, Solomon Islands and Timor-Leste.