ADB sees India growing at 5.5% this year

The Asian Development Bank (ADB) has forecast an acceleration in India's economic growth to 5.5 per cent this year, against the 4.7 per cent growth forecast in December.

ADB said, India would still be operating way below potential, adding that this situation can be improved by clearing investment bottlenecks.

Although growth in South Asia is inching up, it remained the slowest growing sub-region, with GDP expanding by 4.8 per cent in 2013.

''Moderation in India had an outsized impact on the sub-regional average. Growth is forecast to improve to 5.3 per cent in 2014 and 5.8 per cent in 2015, with projected recovery in India to 5.5 per cent and 6.0 per cent, assuming the implementation of long-delayed structural reforms,'' ADB said in its Asian Development Outlook 2014.

According to ADB, the whole of developing Asia will extend its steady economic growth in 2014 as higher demand from recovering advanced economies will be dampened somewhat by moderating growth in China.

Asian Development Outlook 2014, released by the ADB today, forecasts developing Asia to achieve gross domestic product (GDP) growth of 6.2 per cent in 2014, and 6.4 per cent in 2015. The region grew 6.1 per cent in 2013.

''Developing Asia is successfully navigating a challenging global economic landscape and is well positioned to grow steadily over the next two years,'' said ADB President Takehiko Nakao. ''Risks to the outlook have eased compared to the recent past, and policy makers in the region can manage them. At the same time, countries should continue to make every effort to pursue sound macroeconomic policies and needed structural reforms.''

Demand for Asia's output is expected to grow as the recovery in the major industrial economies gains momentum.

ADB estimates combined GDP growth in the United States, the euro area, and Japan to pick up to 1.9 per cent in 2014 from 1.0 per cent in 2013 before strengthening further to 2.2 per cent in 2015.

The improvement in demand, however, will in part be offset by moderating growth in China where the economy slowed to 7.7 per cent in 2013 on impacts from tightened credit growth, pared industrial overcapacity, deepening local government debt, rising wages, currency appreciation, and the continuing shift in the government's development priorities away from quantity toward quality.

These factors persist and China growth is forecast to slow to 7.5 per cent in 2014 and to 7.4 per cent in 2015.

While risks to growth have eased, ADB said, three areas warrant close monitoring. First, if China's efforts to curb credit expansion are too abrupt and excessively undermine growth, a deeper slowdown could drag down prospects for its trade partners.

Second, data on the recovery in the major industrial economies have been mixed; pointing to the possibility that demand for the region's goods from these countries may be softer than envisaged.

And third, a further shock to global financial markets from changes in US monetary policy cannot be ruled out.

ADB says the effect of a moderation in China's economic growth will be felt across East Asia where growth trend could flatten.

East Asia grew by 6.7 per cent in 2013, a slight uptick from 2012, and is expected to maintain that rate into 2014 and 2015.

The slower growth in China will offset upswings in the newly industrialised economies of the Republic of Korea, Hong Kong, China and Taipei (China).

As policies tighten to curb inflation, growth in Mongolia will moderate in 2014 and remain broadly stable in 2015.

Inflation in East Asia hit a 4-year low of 2.4 per cent in 2013 and will remain manageable at 2.5 per cent in 2014 and 2.9 per cent in 2015, ADB said.

According to ADB, growth patterns in Southeast Asia will be dominated by country factors.

Sub-regional GDP decelerated to 5.0 per cent in 2013 as soft export markets and slowdowns affected Indonesia, Thailand, and Malaysia.

Growth in Indonesia, the biggest of these economies, was dampened by policies the government adopted to subdue inflation after it sharply raised fuel prices.

Sub-regional growth is forecast to be similar in 2014, as gains from better export markets are offset by moderating domestic demand.

The outlook improves to 5.4 per cent in 2015, with growth picking up in Indonesia after inflation ebbs, and Thailand's economy rebounding if political disruption recedes.

Central Asia, meanwhile, should maintain its growth pace as its largest economy boosts public spending. Unexpectedly strong performance in Kazakhstan, which accounts for nearly half of sub-regional GDP, and sharp gains in Azerbaijan and the Kyrgyz Republic raised Central Asia's growth rate by nearly a percentage point to 6.5 per cent in 2013.

The sub-region is forecast to maintain this rate through 2015, though tensions arising from events in Ukraine pose downside risk.

Inflation in Central Asia is projected to accelerate sharply to 9.0 per cent in 2014, reflecting currency devaluation in Kazakhstan, the Kyrgyz Republic, and Tajikistan, and higher growth in Georgia and Turkmenistan.

The Pacific will rebound as natural gas production in its largest economy drives growth. GDP growth slowed in the Pacific for the second consecutive year, falling to 4.8 per cent in 2013 as construction on the liquefied natural gas project in Papua New Guinea (PNG) - the sub-region's predominant economy - wrapped up.

The commencement of gas exports in late 2014 and the first full year of production in 2015 will boost growth in PNG and the sub-region in aggregate through the forecast period. Sub-regional GDP growth is projected to reach 5.4 per cent in 2014 before skyrocketing on PNG gas exports to 13.3 per cent in 2015.