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June 28, 2017

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As growth slows, analysts ask if Asia's still got mojo

HONG KONGc-- First the IMF warned developing Asia to brace for shocks from the West. Then the Asian Development Bank slashed its regional growth forecasts. Now analysts are asking, has Asia lost its mojo?

The European debt crisis and weakness in the United States have long been drags on Asian growth, but throw in China's difficult leadership transition and the outlook is grim.

"It wasn't supposed to turn out like this. Growth in recent months has faltered again, confounding expectations of a gradual recovery," HSBC economists Qu Hongbin and Frederic Neumann wrote in a report released last week.

"China is one culprit, though a wobbly West is equally to blame."

As Asia's powerhouses China and India slow faster than many had expected, the ADB last Wednesday revised down its growth estimates for the region's emerging economies to the lowest level since 2009.

Echoing assessments from the International Monetary Fund, the bank also warned of significant risks arising from the eurozone and the uncertain recovery in America, both of which are major export markets for Asian manufacturers.

"Developing Asia is slowing down much more than we expected," ADB chief economist Changyong Rhee told reporters in Hong Kong.

"The years of two-digit growth in Asia are coming to an end."

The bank cut its 2012 growth forecast for developing Asia, which comprises 45 nations, from 6.9 percent in April to 6.1 percent — the lowest since 2009 when the region expanded 6.0 percent.

It also revised downward the 7.3 percent growth outlook for 2013 to 6.7 percent. The region expanded 7.2 percent in 2011.

China's gross domestic product (GDP) was seen expanding 7.7 percent this year — slow by the country's recent standards — before bouncing back to 8.1 percent in 2013, still well below the 9.3 percent achieved last year.

The Manila-based lender said India would see GDP growth slow to 5.6 percent in 2012 before picking up to 6.7 percent next year.

Analysts are wondering when will China crack the whip and provide the policy stimulus its economy needs to avoid a hard landing. HSBC economists Qu and Neumann said they had expected Beijing to act sooner.

"China has held back in providing a determined stimulus, with obvious implications for economic growth regionally," the economists wrote.

Domestic politics may be one reason Beijing seems unwilling or unable to use its fiscal reserves to boost growth, with the Communist Party leadership on the verge of a once-a-decade power shift that has been clouded by controversy.

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