asian development outlook 2013 supplement: softening growth prospects for developing asia

7/27/2019 Asian Development Outlook 2013 Supplement: Softening Growth Prospects for Developing Asia

1/5

Although advanced economies have largely met

expectations so far in , developing Asia has notachieved the momentum envisaged in the Asian

Development Outlook . This Supplementtrims. percentage points from the regions growth

forecasts, to . in and . in .

In the Peoples Republic of China, a weaker-than-

expected rst half of the year and tighter credit

have dampened growth expectations, such that the

economy is now forecast to expand by . in and . in . This has had knock-on eects for

other East Asian economies. East Asias growth is

revised down from . to . in both and .

In India, slowing xed capital formation, weak

industrial activity, and plodding progress on reform

are weighing on the economy, now forecast to

expand by . in . South Asia is paced togrow by . in and . in .

Southeast Asias strong start to the year is being

tempered by slower growth in the Peoples

Republic of China and continued weak demand

from advanced economies for its exports. The ve

largest economies in the Association of Southeast

Asian Nations are poised to grow by . in

and . in .

With softer oil prices and relatively stable food

prices, ination in developing Asia is now forecast

to dip to . in .

Outlook for major industrial economies

eAsian Development Outlook (ADO) envisaged

tepid growth in the major industrial economies overthe forecast horizon. Macroeconomic indicators for therst half of the year show gross domestic product (GDP)rising in line with these expectations (Table ).

e United States (US) is growing moderately,despite scal tightening there. While Abenomicsstimulus is liing Japans growth somewhat above

ADO forecasts, the lingering euro area contraction isgenerating slower-than-expected growth there in .

Contingent upon Japans continued faster pace, theadvanced economies may collectively exceed theADO forecast of . to grow by . in . With theeuro area recovering from its recession and the USstrengthening further, GDP growth should meetthe ADO forecast of ..

US GDP expanded at a seasonally adjustedannualized rate of . in the rst quarter of thisyear, somewhat less than in the same period in but a marked improvement over the . recordedin the fourth quarter of . Strong consumer

Softening growth prospects fordeveloping Asia

Supplement

ASIAN DEVELOPMENT

Outlook

July 2013

ADBs Regional Economic Outlook Task Force led in the preparationof the revised outlook for this ADO Supplement. The Task Force ischaired by the Economics and Research Department and includesrepresentatives from the Central and West Asia Department, EastAsia Department, Pacic Department, O ce of Regional EconomicIntegration, South Asia Department, and Southeast Asia Department.

Table 1 Baseline GDP growth (%)

2012 2013 2014

ADO

2013

Revised ADO

2013

Revised

Major industrial economiesa 1.1 1.0 1.1 1.9 1.9

United States 2.2 2.0 2.0 2.6 2.6

Euro area 0.6 0.3 0.5 1.2 1.2Japan 1.9 1.2 1.8 1.4 1.4

ADO = Asian Development Outlook, GDP = gross domestic product.

a Average growth rates are weighed by GNI, Atlas method (current US dollars).

Sources: Asian Development Bank. . Asian De velopment Outlook . Manila;ADB estimates.


2/5

spending, investment in residential housing, andinventory accumulation oset the drag from declininggovernment spending.

Signs are that strength in residential housingstretched into the second quarter. As of April ,

the house price index had increased over the previousmonth continuously since January . Housing startsin AprilMay were up more than from ayear earlier. Labor markets have also improved, with, jobs added in the second quarter of ,though the unemployment rate remained at . inJune as workforce participation ticked up.

Industrial production has been improving,expanding by . in May over the previous year.However, the purchasing managers index hoveredaround throughout the second quarter, indicatingneither expansion nor contraction in manufacturing.

Despite some positive signs, the eect of scal

tighteningbudget sequestration together withincreases in payroll taxes and the tax rate on highincome earnersmay yet slow consumption growth inthe months ahead. As such, forecasts for US GDP havebeen le unchanged from theADO projections, at. in and . in .

Euro area GDP continues to contract, but witheasing severity. In the rst quarter of , seasonallyadjusted annualized GDP growth in Germany was aweak ., while output in France, Italy, and Spaindeclined further. Retail sales in May rose by . fromApril, aer falling in the previous months. Industrial

production in April increased by a seasonally adjusted. in the euro area, mainly on account of Germany(.) and France (.), but production furtherdeclined in Italy (.). e June manufacturingpurchasing managers index in the euro area improvedto ., its highest level since February , consistentwith an easing pace of GDP contraction in the secondquarter.

To help bolster the agging economy, the EuropeanCentral Bank lowered its interest rate on mainrenancing operations from . to . on May and is expected to maintain this lower rate inthe months ahead. However, in crisis countries with

impaired transmission mechanisms, low central bankrenancing rates are having little impact, as averagebank lending rates in May on new business loans of upto million were as high as . in Spain and . inItaly. Loan growth is likely to remain subdued as banksincreasingly rely on short-term funding and thus arereluctant to extend long-term loans.

Euro area unemployment reached a seasonallyadjusted . in May, up from . in April and

March . e unemployment rate increased in Spainto . and in Italy to ., but declined in Germanyto . and steadied in France at ..

Looking ahead, economic activity is expectedto pick up in the second half of , with external

demand and thus net trade countering the eects ofweak internal demand. However, in light of the weaker-than-expected rst quarter, the forecast for annualeuro area GDP growth in has been revised downfrom . in the ADO to .. is improvementfrom . in is expected to extend into andstrengthen, such that the euro area should achieve the

ADO forecast of ..In Japan, the package of monetary and scal

reforms dubbed Abenomics seems to be bearing fruit.On the back of robust private consumption, GDP grewin the rst quarter at double the seasonally adjustedannualized rate assumed in the ADO: . rather than

.. In May, industrial production rose by a seasonallyadjusted annualized rate of . over the previousmonth, doubling the . increase in April. epurchasing managers index has improved steadily from. in March to . in April and . in June.e Tankan survey of business conditions is reportingoptimism among manufacturers, who now expectcorporate prots to expand this year.

Unemployment is at its lowest since October :. in May . Consumer condence has wobbledsomewhat in recent months but remains above itsmid- levels. Revived consumption has also pushed

up import demand, widening the trade decit to .billion in April from . billion a year earlier.Despite strong rst quarter growth, some indicators

point to volatile economic conditions ahead. Coremachinery orders, a leading indicator of capitalspending in the next months, improved markedlyin March but dropped sharply in April. e valueof the yen has swung wildly against the US dollar,depreciating to per dollar on May beforeappreciating again sharply to beyond on June .When the Nikkei index plummeted by . on May, the stock market saw its largest single-day declinesince the global nancial crisis.

All in all, Japans recovery is expected to pickup momentum as improvement in corporate protsbolsters household income and business investment, asexports pick up, and as the eects of Abenomics takeroot. In view of the strong rst quarter, the growthforecasts are revised up from . in the ADO to.. However, the impending value-added tax rateincrease is cause to maintain the ADO growth forecastfor at ..


3/5

Regional Economic Outlook

Growth outlook

Developing Asia had di culty building momentumin the rst half of , despite the marginally betteroutlook for the advanced economies. e region wasexpected to bounce back from its relatively sluggish. growth pace in , but it is now forecast to pickup only slightly to . in and . in , a .percentage point reduction fromADO forecasts(Table ). Although the downward revision to growthforecasts for the Peoples Republic of China (PRC) isa key factor underlying the aggregate, unexpectedlysubdued economic activity cuts across subregions.

In East Asia, the PRCs weaker-than-expectedGDP growth of . year on year in the rst quarterof and . in the second quarter points toslow but persistent growth deceleration. In May,industrial production expanded by a moderate .,and investment growth also weakened. Turbulence inthe domestic interbank market in late June elevated

funding costs (particularly for nonbank nance) andmade nancial institutions more averse to risk. iscould further weaken investment in the remainderof the year, undermining growth at least in the shortterm. On the upside, consumption is expected to

support growth as consumer condence remains highand retail sales are picking up. is view is bolsteredby continued wage growth in real terms and strongemployment despite slackening economic growth.Imports and exports both saw growth deceleratesubstantially, partly because of a crackdown on over-invoicing trade ows to Taipei,China and Hong Kong,China to skirt capital controls. Export growth willlikely remain so as weak global activity and thestrengthening renminbi weigh on external demand.Meanwhile, weaker domestic demand for capitalgoods and high-end consumer goods will be a drag onimports. Taken together, growth in the PRC is revised

downward from . to . in and from . to. in .

e slower PRC economy coupled with weakexternal demand from major industrial economiescontinue to stymie growth in most of East Asia,particularly in Hong Kong, China; Mongolia; andTaipei,China. Growth in Mongolia in the rst quarterof braked to . year on year in line withthe return of slower growth in the PRC and fallingcommodity prices. Hong Kong, China lost momentumin the rst quarter of as the fragile internationaltrading environment held GDP growth to a scant

. seasonally adjusted, quarter on quarter terms.In Taipei,China, prospects are dimming following therelease of weak rst quarter data, and this is expectedto continue until the second half of the year. Incontrast, rst quarter growth in the Republic of Koreaexceeded market expectations, lied by constructioninvestment, plant equipment investment, and exports.Overall growth in East Asia has been revised downfrom . to . in both and .

South Asias largest economy, India, is expectedto see growth moderate to . in against theearlier projection of .. While this is higher than the. posted in , growth remains constrained by

supply-side bottlenecks, as reected in the continuedslowdown in xed capital formation, weakness in theindustrial sector, and sluggish progress in pushingthrough badly needed structural reforms. However,growth in India is expected to accelerate in asslower ination provides some scope for monetaryeasing that could boost investment and consumption.Growth will be further boosted by pre-electionspending, and the pickup in US growth will supportIndian tech companies and related service sectors.

e Sri Lankan economy is forecast to grow by. in on the back of a strong performance in

Table 2 GDP growth, developing Asia (%)

2012 2013 2014

ADO

2013

Revised ADO

2013

Revised

Developing Asia 6.1 6.6 6.3 6.7 6.4

Central Asia 5.6 5.5 5.3 6.0 6.0

East Asia 6.5 7.1 6.7 7.1 6.7

China, Peoples Rep. of 7.8 8.2 7.7 8.0 7.5

South Asia 5.0 5.7 5.6 6.2 6.2

India 5.0 6.0 5.8 6.5 6.5

Southeast Asia5.6 5.4 5.2 5.7 5.6ASEAN-5 5.6 5.4 5.2 5.7 5.6

The Pacific 7.6 5.2 5.0 5.5 5.5

ADO = Asian Development Outlook, ASEAN = Association of Southeast Asian Nations.Note: Developing Asia refers to 45 developing member countries of the AsianDevelopment Bank . Central Asia comprises Armenia, Azerbaijan, Georgia,Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. EastAsia comprises the Peoples Republic of China; Hong Kong, China; the Republicof Korea; Mongolia; and Taipei,China. South Asiacomprises Afghanistan,Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka.Southeast Asia comprises the ASEAN-5 (Indonesia, Malaysia, the Philippines,Thailand, and Viet Nam) plus Brunei Darussalam, Cambodia, the Lao PeoplesDemocratic Republic, Myanmar, and Singapore. The Pacic comprises CookIslands, Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru,Papua New Guinea, Palau, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu,and Vanuatu.

Sources: Asian Development Bank. . Asian De velopment Outlook . Manila;ADB estimates.


4/5

the rst quarter of the year. Healthy growth in and acceleration to . in will be supportedby further monetary easing and improved electricitygeneration that will power growth in domesticindustry. By contrast, Afghanistan, Bangladesh, Nepal,

and Pakistan are expected to report soer growthin than in , as some of these countries facepolitical transitions that could hamper economicpolicy making. e South Asia subregion is expected toexpand by . in (marginally less than the ADO projection of .) and pick up momentum to post. growth in .

Southeast Asias economic growth was generallysolid in the rst quarter of . e Philippinesachieved stronger-than-expected GDP growth of .year on year, as domestic demand was buoyed byaccelerated public and private investment and stableremittance inows. Indonesias domestic demand

continues to be strong, driven by private consumptionand both private and public investment, with GDPgrowing by . year on year. ailands economicgrowth moderated to . year on year in the rstquarter, coming o a rapid pace that largelyreected recovery from oods in . Malaysiaseconomic growth slowed on weaker external demandand moderating domestic demand. e rest of thesubregion is holding up relatively well, except thatSingapores open economy grew by only . year onyear in the rst quarter of . Capital outows fromthe subregion have fueled stock market volatility, but

the real sector has so far been largely unaected. Withthe soer outlook for the PRC, growth forecasts forSoutheast Asia have been trimmed from . to .in and from . to . in . Although lessrapid than envisaged in theADO, aggregate growthin the ASEAN- (Indonesia, Malaysia, the Philippines,ailand, and Viet Nam, the ve largest economiesin the Association of Southeast Asian Nations) willcontinue to be solid at . in and . in .

In Central Asia, as in other subregions, growth ismoderating. e aggregate growth projection for thesubregion is revised down from . to . in before edging up to . in , as forecast in the

ADO. e revision in reects sluggish economicperformance in Kazakhstan and Georgia, outweighingstronger-than-expected growth in the Kyrgyz Republic.In Kazakhstan, industrial production grew by a modest. in the rst months of (compared with .in the same period of ), as agriculture also grewslowly and construction dragged. Exports of oil arestagnant, and those of metals and grains are dropping.Growth may recover in , when the Kashagan oileld is to be commissioned. In Georgia, upcomingpresidential elections are creating policy and politicaluncertainty that is slowing investment as investors shi

to a wait-and-see attitude. Faster growth is anticipatedin . Meanwhile, the Kyrgyz Republic posted stronggrowth of . year on year in the rst months of, with industrial production growing by asoutput from the Kumtor goldmine resumed.

e Pacic appears to be slowing more thananticipated inADO . Regional growth is nowprojected to moderate from . in to . in, or . percentage points below earlier forecasts.Unexpectedly low government capital spending inTimor-Leste and lower gold production in SolomonIslands drive the revision. Although Papua NewGuinea, the largest developing economy in the Pacic,is on track to achieve ADO growth forecasts, lowerprices for export commodities present clear downsiderisks for government stimulus that was meant tosupport growth following the completion of a liqueednatural gas pipeline. In contrast, the Fijian economy is

showing signs of picking up as planned infrastructuredevelopment moves ahead, and consumption andinvestment also appear to be on the rise, lending anupward bias to forecasts there. Growth projectionsfor most of the smaller economies of the Pacicremain unchanged for , except for Kiribati, whereinfrastructure investment is delayed, and Nauru, whichis weighed by heightened political risks and weakerphosphate export prospects. A more positive globaleconomic outlook is expected to spill over into thePacic and accelerate growth in the region to .in , in line withADO projections. Buoying this

upbeat projection are the start of liqueed natural gasexports from Papua New Guinea and post-cyclonereconstruction and infrastructure work in a fewsmaller Pacic island states.

Inflation outlook

Slow GDP growth in the region is helping to containdemand-side inationary pressure in developing Asia.At the same time, commodity prices are set to decline ata faster pace than anticipated in the ADO. e growth

slowdown in developing Asia and other emergingmarkets, along with continued soness in the majorindustrial economies, is suppressing demand for energy,while strong harvests are keeping food prices in check.

Aer topping per barrel in mid-February, the price of Brent crude reversed course andfell to a low of in mid-Aprilits lowest since July. Bearish market sentiment prevailed through thesecond quarter against the backdrop of weakeningglobal demand. Although political tensions in theMiddle East have pushed up oil prices in recent weeks,oil futures suggest that the market expects Brent crude


5/5

Asian Development Bank ISBN 978-92-9254-175-0 (PDF) Publication Stock No. RPT135856-3

About the Asian Development Bank

ADBs vision is an Asia and Pacic region free of poverty. Its mission is to help its developing member countries reduce poverty and improve thequality of life of their people. Despite the regions many successes, it remains home to two-thirds of the worlds poor: 1.7 billion people who live onless than $2 a day, with 828 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth,environmentally sustainable growth, and regional integration.

Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries arepolicy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org

prices to fall back to around in . Expandednatural gas production globally is contributing to thesoening of energy prices.

e World Bank index of food commodity pricesfell for the fourth straight month in June, putting prices

. below a year earlier. Grain harvests in most majorproducing countries are expected to exceed those of lastyear. e Food and Agriculture Organization sees foodcommodity markets, in particular cereals, to be morebalanced in the / agricultural season. It expects,for example, wheat production to be . higher thanin / as production recovers in drought-aectedareas of Europe and Central Asia. Prices for rice, a keyconsumer commodity in developing Asia, have beenrelatively stable, even retreating somewhat from their/ levels as production is spurred by subsidies inlarge exporters such as India and ailand.

With expected declines in commodity prices and

decelerating growth, inationary pressures withindeveloping Asia will be generally less acute thananticipated in theADO . Ination in the PRCaveraged . in the rst months of , wellbelow the forecast . for the year as a whole. Indiahas beneted from a favorable monsoon that pusheddown domestic food prices, such that overall priceincreases should average . this year. For the regionas a whole, ination is forecast to average . in and . in , half a percentage point o ofADOforecasts (Table ). e ASEAN- appear to buck thistrend of soer-than-expected price pressures, but

this anomaly reects a increase in subsidizedfuel prices in Indonesia in June that is pushing

up consumer prices there. Ination in Malaysia, the

Philippines, ailand, and Viet Nam is expected to beat or belowADO projections.

Table 3 Inflation, developing Asia (%)

2012 2013 2014

ADO

2013

Revised ADO

2013

Revised

Developing Asia 3.7 4.0 3.5 4.2 3.7

Central Asia 5.3 6.7 6.7 6.7 6.8

East Asia 2.6 3.1 2.4 3.3 2.7

China, Peoples Rep. of 2.6 3.2 2.5 3.5 2.7

South Asia 7.9 7.4 6.7 7.1 6.9

India 7.4 7.2 6.5 6.8 6.6

Southeast Asia 3.9 4.2 4.3 4.1 4.2

ASEAN-5 3.6 4.0 4.2 3.8 4.0

The Pacific 5.3 6.1 5.7 6.3 5.9

ADO = Asian Development Outlook, ASEAN = Association of Southeast Asian Nations.Note: Developing Asia refers to 45 developing member countries of the AsianDevelopment Bank . Central Asia comprises Armenia, Azerbaijan, Georgia,Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. EastAsia comprises the Peoples Republic of China; Hong Kong, China; the Republicof Korea; Mongolia; and Taipei,China.South Asiacomprises Afghanistan,Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. SoutheastAsia comprises the ASEAN-5 (Indonesia, Malaysia, the Philippines, Thailand,and Viet Nam) plus Brunei Darussalam, Cambodia, the Lao Peoples DemocraticRepublic, Myanmar, and Singapore. The Pacic comprises Cook Islands, Fiji,Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Papua NewGuinea, Palau, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu.

Sources: Asian Development Bank. . Asian D evelopment Outlook . Manila;ADB estimates.

asian development outlook 2013 supplement: softening growth prospects for developing asia

Documents