Countries in developing Asia will see firmer growth against a backdrop of an improving external environment through 2015 as the recovering G3 economies—the United States, Japan, and the eurozone—gain traction, Manila-based lender Asian Development Bank (ADB) said.
In its latest “Asian Economic Integration Monitor,” the ADB said that financial markets in the G3 economies remain relatively bullish as the US recovery matures. The eurozone may be showing limited economic recovery, but Japan’s near-term economic conditions remain positive.
“Even as growth in some of the region’s largest economies moderates, developing Asia should see a marginal increase in growth over the next two years as improved demand from advanced economies spurs exports and several economies boost investment,” ADB said.
Developing Asia refers to all countries in Asia excluding Australia, Japan, and New Zealand.
The lender said that overall, economic growth in developing Asia will be in the range of 6.2 percent in 2014 and 6.4 percent in 2015.
By region, the ADB report said that economic growth in East and Central Asia will be flat, though some economies may moderate on slower investment and consumption growth.
For Southeast Asia, economies will see growth flatten, with some economies slowing because of weaker domestic demand arising from “idiosyncratic” domestic shocks.
“Growth is expected to remain steady in 2014 before bouncing back in 2015 due to a recovery in exports and investments,” it said.
The Philippines, after two years of strong growth, is expected to experience a slowdown in gross domestic product (GDP) growth, while potential power shortages and rising power prices could tame growth further and feed inflation, which has been averaging at about 4 percent since December 2013.
The ADB report also pointed out three main downside risks to the outlook: an economic shock or reversal in any G3 economy could derail the nascent global recovery; China’s economy moderates too quickly, affecting the rest of developing Asia; and volatile capital flows affecting financial conditions across the region.
In addition, the ADB report said that shifting relations between Asian countries and the changing global economy mean that the region needs to strengthen its economic cooperation.
“Asia needs stronger cooperation now more than ever,” said Iwan Azis, head of ADB’s Office of Regional Economic Integration.
“Regional trade and financial integration have ratcheted up over the past decade and closer cooperation is needed to counter geopolitical risks while surveillance and financial safety nets can address contagion,” he added.