Asian Development Bank (ADB) forecasted the declining of gross domestic product (GDP) growth for developing Asia, from 5.9 percent in 2018 to 5.7 percent in this year and 5.6 percent by 2020 - Photo by ADB

JAKARTA (TheInsiderStories) – Asian Development Bank (ADB) forecasted the declining of gross domestic product (GDP) growth for developing Asia, from 5.9 percent in 2018 to 5.7 percent in this year and 5.6 percent by 2020. But some observer sees Asia’ economic growth slowdown may be nearing an end, despite gloomy global forecasts and the threat of a United States (US) – China trade war.

“Risks remain tilted to the downside,” the Bank said, pointing to threat of a drawn-out or deteriorating trade conflict between the US and China, and uncertainties over US fiscal policy and Brexit.

It projected China, the world’ second-largest economy, would slow from 6.6 percent GDP growth in 2018 to 6.3 percent this year and 6.1 percent in 2020, due to restrictions on the housing market and shadow banking, along with sluggish exports. Southeast Asia could suffer the after-effects, although South Asia is expected to buck the trend, led by India.

In the Asia-Pacific region, China is seen slowing to a 6.3 percent expansion this year and 6.1 percent in 2020. Japan, the world’s third-largest economy, could cool from 1.0 percent GDP growth this year to just 0.5 percent in 2020.

Elsewhere, the ASEAN-5 comprising Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are seen broadly stable, with 5.1 percent GDP growth this year rising to 5.2 percent in 2020. Indonesia alone, the bank estimates, will grow by 5.2 percent this year and 5.3 percent by 2020 triggered by strong investment and domestic demand.

Asia’ currency and equity markets are expected to strengthen as a result of interest rate cuts along with stronger foreign equity inflows as the recovery takes hold. India is still viewed as “the best performing major emerging economy in the coming years.”

From an estimated 7.0 percent growth in 2018, India’s economy is projected to expand at a faster pace of 7.2 percent in 2019 and 7.3 percent in 2020, the ADB said, as lower policy rates and income support to farmers boost domestic demand.

The lender also cited uncertainties stemming from US fiscal policy and a possible disorderly Brexit as risks to its outlook because they could slow growth in advanced economies and cloud the outlook for the world’s second-largest economy.

Beyond trade risks, the ADB said China’ growth will also be retrained by restrictions on shadow banking, which is expected to limit credit expansion even as fiscal stimulus provides some offset.

Chinese banks may still remain reluctant to lower lending costs for companies partly on worries of rising risks of corporate defaults in a slowing economy. The central bank could take further actions, such as cutting the benchmark 1-year lending and deposit rates, the ADB said. China has set its 2019 economic growth target at 6.0 to 6.5 percent.

Citing stable commodity prices and Asian currencies depreciated, the ADB lowered its average inflation forecast for developing Asia to 2.5 percent this year from 2.7 percent previously, and it is expected to remain subdued at 2.5 percent in 2020.

Policy Stimulus

Amid such warnings, other economists see signs that Asia’ downturn is bottoming out, starting with China’ surprisingly upbeat GDP growth data. On April 17, Beijing announced a 6.4 percent GDP expansion in the first quarter (1Q) on the back of increased industrial production and rising consumer demand.

The expansion compared to a 6.3 percent GDP gain projected by analysts, and followed recent fiscal stimulus and increased bank lending. Julian Evans-Pritchard, senior China economist, Capital Economics admitted, the latest surge in industrial production is hard to take at face value and is likely to be partially reversed in the coming months.

“But the big picture is that policy stimulus is clearly working and should help to shore up China’s economy in the coming quarters,” he said

ANZ Research’s Khoon Goh, head of Asia research, added it supported evidence that Asia’ growth slowdown may be close to a trough. He stated: “China’s (1Q) GDP growth has beat expectations but more importantly, the activity indicators for March showed improving momentum.”

Across the region, export data for March has been mixed so far, but the latest PMI new export orders point to a likely improvement in the months ahead. A key leading indicator for the global technology cycle is pointing toward a rebound, which would bode well for Asia’s exports, he added.

These signs will help secure a growth recovery in the second half of 2019. Given the inventory overhang in some economies, the magnitude of the recovery is likely to be moderate in the initial stages. However, it should be sufficient to support risk appetite and sustain foreign portfolio flows into the region.

Significantly, Goh said the Australian bank had revised upward its China GDP forecast to 6.4 percent for 2019, from 6.3 percent previously, due to Beijing’s fiscal and monetary stimulus. However, Capital Economics is unconvinced, arguing that recent weak global growth will endure “much longer than is commonly assumed.”

“Previous policy tightening has yet to take its full toll on activity in the US and China’s stimulus seems too modest to prompt a sustained pick-up in growth,” the London-based consultancy said in an April 18 report.

But for a region responsible for much of the world’ recent economic expansion, signs of emerging bright futures should give hope to policymakers and investors alike.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com