ADB sees slower growth for Asia, China in 2015, 2016

Growth in developing Asia will likely be slower than previously thought as a slowdown in China’s economy hurts demand, the Asian Development Bank said, and urged policymakers in the region to strengthen financial-system buffers against external shocks.

Developing Asia is now expected to grow 5.8% and 6.0% this year and in 2016, down from the ADB’s July forecast of 6.1% and 6.2%, the bank said in its 2015 outlook update released on Tuesday.

The region, which groups 45 countries in Asia-Pacific, grew 6.2% in 2014.

The Manila-based lender also cut its growth estimate for East Asia to 6.0% for this year and next, from its earlier forecast of 6.2 for both years, with China expected to miss its growth target of around 7% this year.

Growth in China is seen cooling to 6.8% this year from 7.3% in 2014, and slow further to 6.7% in 2016.

Fears of a China-led global slowdown, which had sent global stock markets tumbling, prompted the U.S. Federal Reserve last week to hold off on raising interest rates for the first time in almost a decade.

The ADB said that the capital outflows could accelerate ahead of the Fed rate hike and urged policymakers to strengthen financial systems in the region to mitigate shocks.

“Implementing macroprudential policies and developing local currency bond markets can bolster financial system resilience and mitigate risks to borrowers,” it said.

The ADB slashed its growth forecast for South Asia to 6.9% this year and 7.3% next year compared with the 7.3% and 7.6% estimates made in July.

India’s growth is seen weaker at 7.4% and 7.8% for this year and next compared with its July forecasts of 7.8% and 8.2%.

Southeast Asia’s growth will be at 4.4% this year, same as last year and down from its July forecast of 4.6%, before accelerating to 4.9% next year, the ADB said.

Inflation in the region in 2015 is now forecast to be a slightly lower at 2.3%, compared to the 2.4% seen in July, before it bounces back to 3.0% in 2016.

The report is available on the ADB’s website www.adb.org.