The region must strengthen its ability to respond to external shocks. Emerging markets are facing receding capital flows and depreciating currencies—a trend that may be exacerbated by the upcoming rise in US interest rates. Implementing macroprudential policies and developing local currency bond markets can bolster financial system resilience and mitigate risks to borrowers.
Enabling Women, Energizing Asia
Currently moderating growth highlights the need to identify untapped resources in the region. Developing Asia has made considerable progress in closing gender gaps in health and education over the past several decades. Today, narrowing gender gaps in the labor market is a good way to give the region a considerable growth boost—and, at the same time, do the right thing for women as individuals.
Highlights
Growth forecasts for gross domestic product (GDP) in the region are revised down to 5.8% in 2015 and 6.0% in 2016 from the Asian Development Outlook 2015 (ADO 2015) forecast, published in March, of 6.3% for both years. Delayed recovery in the major industrial economies and moderating prospects for the large economies of the People’s Republic of China (PRC) and India weigh on the outlook, slackening the projected pace below even the 2014 rate of 6.2%.
Recovery in the major industrial economies picks up after a slow start. In the first half of 2015, harsh winter weather and labor disputes in West Coast ports slowed growth in the United States (US), while an unexpectedly weak recovery in consumption and investment slowed expansion in Japan. On the other hand, the receding threat of a Greek debt crisis provided a fillip to growth projections for the euro area. Together, the major industrial economies are projected to expand by 1.9% in 2015, 0.3 percentage points slower than the ADO 2015 projection, and 2.3% in 2016.
Slowing investment and weak exports ease growth in the PRC. Despite robust consumption demand, economic activity fell short of expectations in the first 8 months of the year as investment and exports underperformed. Growth is forecast to slow from 7.3% in 2014 to 6.8% in 2015. As external demand strengthens with the pickup in growth in the industrial countries, and as improved financial conditions support investment, downward pressure on growth will ease. The PRC is projected to grow by 6.7% in 2016.
Prospects for India’s growth acceleration await a pickup in external demand and reform progress. GDP decelerated in the first quarter of fiscal year 2015 (ending 31 March 2016), as external demand weakened and investors hesitated awaiting further action on structural reform. Forecasts in ADO 2015 are revised down by 0.4 percentage points to 7.4% in FY2015. Growth is expected to pick up to 7.8% in FY2016 as key elements of the government’s economic reform package reach fruition.
The pickup in Southeast Asia’s large economies is delayed. For the five large economies in the Association of Southeast Asian Nations (ASEAN), the growth forecast for this year is lowered to 4.8%—a slight uptick from 2014—before accelerating to 5.3% next year. Subdued demand from the major industrial economies and the PRC dampened exports. Faster than- expected growth in Viet Nam was more than offset by weakness in the other three economies. Planned infrastructure investment has fallen behind schedule in Indonesia and the Philippines, and Thailand’s recovery to date has been sluggish.
Soft global commodity prices keep inflation low. Global oil prices have remained low as food prices declined under favorable supply conditions. Relatively soft domestic demand will let regional inflation slip from 3.0% in 2014 to 2.3% in 2015 before it bounces back to 3.0% in 2016. Although forecast inflation is much lower than the regional long-run rate of about 4%, the impending rise in US interest rates may constrain scope in the region for loosening monetary policy to boost domestic demand.
Forecasts for the regional current account surplus are maintained. Developing Asia’s current account surplus is forecast to widen from the equivalent of 2.4% of regional GDP in 2014 to 2.5% in 2015 before falling back slightly to 2.3% in 2016. The projections are the same as in ADO 2015, as narrowing surpluses in commodity-exporting countries are offset by improved external balances for commodity importers.
