ADB: Asia's developing economies unscathed despite Brexit, weak US

MANILA, Philippines ­– The developing economies of Asia-Pacific are poised to weather the Brexit storm as well as weaker US growth, according to a new report by the Asian Development Bank (ADB).

The ADB expects 2016 growth for the developing economies to reach 5.6%, just slightly below its previous projection of 5.7%.

For 2017, growth is seen as unchanged at 5.7%, said the ADB in a supplement to its March Asian Development Outlook 2016 released on Monday, July 18. 

“Although the Brexit vote has affected developing Asia's currency and stock markets, its impact on the real economy in the short term is expected to be small," said ADB chief economist Shang-Jin Wei.

But he added that "in light of the tepid growth prospects in the major industrial economies, policy makers should remain vigilant and be prepared to respond to external shocks to ensure growth in the region remains robust."

Southeast Asia steady

The ADB's growth projections for Southeast Asia for this year and 2017 remain unchanged at 4.5% and 4.8%, as private consumption pushed solid performances by most economies in the first half of 2016.

Vietnam was an exception to this, however, as its economy "came under pressure from a worsening drought that caused a contraction in the agriculture sector."

The Philippines saw slight drops in the peso and stock market immediately after Britain voted to leave the European Union, but has since recovered.

The resilience is particularly notable in the stock market with the Philippine Stock Exchange index (PSEi) closing past the 8,000 level on Friday, July 15, its best performance in 15 months. The index is also up 15.5% year-to-date.

The ADB's growth forecast for the country remains unchanged at 6.0% for this year and 6.1% for 2017.

Growth led by China and India

The solid performances in Southeast Asia notwithstanding, the ADB noted that growth in 2016 and 2017 will be led by Asia's two engines of growth – China and India.

China, the world's second largest economy, remains on track to meet the projected growth of 6.5% in 2016 and 6.3% in 2017. The Chinese government is expected to continue using fiscal and monetary stimulus measures to support its targets.

The ADB sees growth for East Asia as a whole unchanged at 5.7% in 2016 and 5.6% in 2017.

South Asia, meanwhile, is expected to be the fastest growing subregion, led by India, whose economy has shrugged off global headwinds. India is on track to meet the ADB's March fiscal year 2016 (year to March 2017) projected growth target of 7.4%, on the back of brisk consumer spending and an uptick in the rural economy.

The growth outlook for Central Asia was lowered, however, from the earlier 2016 forecast of 2.1% to 1.7%, and to 2.7% from 2.8% in 2017, with continued soft commodity prices and the recession in Russia continuing to hurt the region.

In the Pacific, growth for 2016 is expected to be moderate at 3.9% in 2016 from 7.1% in 2015.

The report now projects inflation for developing Asia to come in at 2.8% for 2016 and 3.0% for 2017 – a 0.3 percentage point rise for each year from the previous forecasts.

This is due largely to a recovery in oil and food prices. Oil prices rebounded from early-year lows and food prices rose nearly 9% in June 2016 from the previous year, marking the 5th straight month the index has risen in value, the ADB said. – Rappler.com