Asian Development Outlook 2016: Highlights

Growth is slowing in many developing countries in Asia as a result of the continued weak recovery in major industrial economies and softer growth prospects for the People’s Republic of China.

Developing Asia is projected to grow at 5.7% in both 2016 and 2017, down slightly from 5.9% in 2015, due chiefly to considerable global headwinds and moderating growth in the People’s Republic of China.

Commodity price declines dragged inflation down to 2.2% in 2015. Regional inflation will revive to 2.5% in 2016 as domestic demand strengthens, and rise further to 2.7% in 2017 as global commodity prices recover.

Risks are tilted to the downside as tightening US monetary policy may heighten financial volatility, further moderation in the People’s Republic of China could spill over into its neighbors, and producer price deflation may undermine growth in some economies.

Reform to raise labor productivity can invigorate developing Asia’s potential growth.

Rescuing growth in uncertain times

Growth in developing Asia is forecast to dip slightly, with growth in the industrial economies unlikely to pick up this year. The PRC continues to shift away from its reliance on investment and exports, and strong public investment has boosted growth in India despite weak exports. Stronger growth is seen for ASEAN, and low commodity prices are weighing on growth prospects in Central Asia and the Pacific. Most Asian economies are benefitting from low international food and fuel prices, while the regional current account surplus will narrow this year and next. Risks to the regional growth forecast remain tilted to the downside.

Spillover from the People’s Republic of China

Growth moderation in the PRC weighs on regional growth. Simulations estimate that the drop in PRC growth may have shaved as much as 0.3 percentage points from developing Asia’s outlook. The PRC effect is largely centered on Asia, reflecting strong regional trade and production links. In contrast, the impact on the US and the euro area through trade is largely offset by the benefit of lower commodity prices. Ongoing structural change in the PRC is affecting its import structure. Contributing to its growth moderation, the PRC is currently undergoing a structural transformation from growth led by exports and investment to growth grounded on domestic consumption. How PRC structural change affects an economy depends on the relationship. Spillover from PRC restructuring into particular economies will differ depending on whether they are exporters of consumer goods, parts of the same production chain, or competitors.

Emergent producer price deflation

The PRC and some other Asian economies recently experienced producer price deflation. Slowing economic growth has combined with sharply lower oil prices to push producer price inflation into negative territory, though consumer price inflation remains mostly positive. Commodity price shocks get diluted along distribution chains before affecting consumers. The pass-through of oil and food prices thus tends to be lower for consumer prices than for producer prices. Historically, falling producer prices are more common than declines in consumer prices. Producer price deflation is associated with lower economic growth. Restrained investment is one channel by which producer price deflation hampers growth. Policy makers should be aware of deflation’s potential to harm economic growth.
Download the 2016 Report here: ado2016
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About sotheara

Name: SOTHEARA YOEURNG. Degrees: LL.M/M.C.L, Delhi University, New Delhi, India (2014) LL.B, University of Cambodia (UC) Working Experiences - Currently: Teaching Laws at various private universities in Cambodia
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