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Developing Asia on track for 6.5% growth

Developing Asia on track for 6.5% growth Anthony Harrington

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In an update (July 18th) to its Asian Development Outlook 2014, the Asian Development Bank (ADB) headlines the fact that developing Asia can expect a stable growth outlook. Despite the slower than expected return to growth of the US economy, the countries covered by the "developing Asia" tag remain broadly on track to achieve the 6.2% growth the ADB forecast in its 2014 Outlook. Moreover, the ADB is confident, so far, that 2015 should see growth of 6.4%.

Growth won't be uniform across the region, however. The ADB reckons that a slight downward revision to the GDP forecasts for Central Asia, Southeast Asia and the Pacific, are being offset by an upward adjustment for South Asia, where the prior forecast of 5.8% growth has been revised up to 6.1%.

Apart from China, which is on track to meet the expected growth rate of 7.5% in 2015, growth surged in the Republic of Korea and in Taipei. The Republic of Korea grew by 3.9% on robust exports and construction while Taipei achieved 3.1% growth on the back of solid domestic consumption and exports, the ADB says.

Interestingly, despite the ADB's optimism, a working paper from the International Monetary Fund (IMF), Potential Growth in Emerging Asia, published in January 2014, points out that the region could be headed for a structural slowdown:

As a region with a high share of rapidly growing middle-income countries, emerging Asia is particularly susceptible to the “middle-income trap”, a phenomenon of rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries. Indeed recent papers find that middle-income economies are significantly more at risk of experiencing a sustained growth slowdown than their lower- and higher-income counterparts."

The IMF paper starts from the fact that both China and India have displayed a declining growth trajectory for the last six years, or, in other words, since the 2008 global financial crash. India is down from 8% year on year growth to 4% on some readings, while China has waved goodbye to 10% growth and is now struggling for between 7% and 7.5%. The other Asian economies may not be showing signs of a significant slowdown, but their rate of growth is significantly lower, the authors argue.

There could be two reasons for this, one being external shocks, such as the US tapering off of quantitative easing. The other could be that there are real structural reasons for the slowdown, which means higher growth rates might be very hard to achieve. The 0% to 2% growth that advanced markets seem to be mired in could transfer to Asia via trade and technology linkages, the authors suggest. This would create further headwinds against more vigorous rates of growth for the region.

The IMF paper admits that, unlike the slowdown in China, most of the ASEAN economies, particularly Indonesia, the Philippines and Malaysia are showing a modest pick up in growth. The paper's analysis puts this down to strong domestic demand, intra-regional integration, improved governance and structural reforms, all of which are paying dividends for a number of Asian countries.

According to the IMF working paper, if the ASEAN countries want to avoid the "middle-income trap" they are going to have to focus on "moving up the value chain by investing in infrastructure, education, research and development and by encouraging efficient allocation of resources and innovation through increased product marketing competition." Governments need to accelerate the pace of reforms, the authors argue.

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Further reading on Asia:

Tags: ADB , Asia Development Bank , China , IMF , Republic of Korea , South Asia
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