Asian Development Bank increases growth estimate for all of Asia…except India

By Netra Mittal

On Wednesday, the Asian Development Bank (ADB) raised its economic growth rate estimate for Asia from 5.9 to 6 percent. On the other hand, they have estimated India’s growth to have come down to 6.7 percent from 7 percent, for this quarter.

Why Asia’s estimated increase

Asian Development Bank attributes this increase to a sudden rise in exports and China’s resilience, bringing it to a likely overall growth rate of 6.8 percent for 2017.

However, this surprising growth rate is expected to slow down to a crawl, with 6.4 percent, in the following year. This will largely be due to China’s property investment and construction slowing down in response to extreme debt risks. The Chinese government has also been seen campaigning against risky lending, all the while amping up the borrowing costs. Additionally, banks will be expected to maintain a lower reserve requirement ratio, giving them the ability to lend more to struggling smaller business and the private sector.

Apart from efforts to curb rising property prices, there are also problems faced by large factories in China due to the rise of pollution, thereby decreasing overall manufacturing. The decrease in manufacturing will hurt China’s economy and consequently, affect the countries that depend significantly on exports to China, like Indonesia (most affected) and Vietnam.

Why India’s estimate decreased this quarter

Arvind Subramanian, India’s Chief Economic Advisor, was quick to point out that this decrease could very well be a result of the implementation of GST (recognising the loopholes) and the aftermath of demonisation. “We have lots of challenges ahead… we have seen growth slowing down and investment not picking up. So, we have to attack this problem on many fronts—exchange rate, public investments while maintaining macroeconomic stability,” he said.

While India’s growth rate is expected to pick up in 2018, Asia’s (largely China) is likely to follow a predicted decline mainly due to the rise in crude oil prices, increase in labour costs, and potential capital reversals triggered by monetary policy changes in the developed nations, particularly the EU and the USA, as stated in the Asian Development Bank report.

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