Asia Economies on Track for Growth as Inflation Cools, ADB says

By Amanda Lee and Fabiana Negrin Ochoa

Asia economies remain on track for solid growth and cooling inflation, backed by domestic demand and a continued exports recovery, the Asian Development Bank said.

Growth in developing Asia has been robust during the first half of the year despite some headwinds in China, the Philippines-based multilateral bank said in its September outlook released Wednesday. Inflation has continued to retreat, though progress has been uneven.

"Policymakers in the region need to stay vigilant to keep growth and inflation on track, however," said ADB's chief economist, Albert Park.

A rise in protectionism--potentially fueled by the U.S. presidential election--geopolitical conflicts and adverse weather are among the factors that could derail the positive momentum, the report said.

ADB's latest forecasts peg annual gross domestic product growth for the region, comprising 46 of its members--including China, South Korea and India--at 5.0%. That compares with an expansion of 5.1% last year.

Exports will be a key engine of growth, benefiting the region's technology exporters as global demand for artificial intelligence and cloud computing products surges, ADB added.

Domestic demand will also remain firm, it said, supported by the further easing of price pressures thanks to the delayed effects of central banks' monetary tightening, combined with falling commodity prices. That's brought inflation back to prepandemic levels, removing a key overhang that had worried many policymakers as living costs surged and borrowing costs stayed high.

ADB now expects inflation in developing Asia to come in at 2.8% this year, a touch below the 2.9% projection it made in July and the 3.2% forecast in April.

The bank also trimmed its 2025 inflation view to 2.9% from 3.0% in April.

"Lower inflation is creating conditions for eventual monetary policy easing," it said.

The Federal Reserve's long-awaited rate cut last week should create more room for Asian central banks to loosen policy settings. The likes of Indonesia and the Philippines have already embarked on their cutting cycles, while China's central bank this week unleashed a string of easing measures to help boost its economy.

Continued weakness in the economic powerhouse was again flagged in the ADB report as a key factor to watch that could have knock-on effects for the region.

China's growth will be dented if its property market downturn worsens, dragging on economic activity. That effect could be compounded by deteriorating consumer and investor sentiment, as well as its implications for local government revenue, the ADB said. The rest of the region could be affected via several channels, including lower Chinese demand for imports, it added.

ADB kept its 2024 and 2025 economic growth forecasts for China at 4.8% and 4.5% respectively.

Despite the risk from the property sector and external headwinds like geopolitical tensions and trade tariffs, the bank expects the Chinese economy to remain stable

"Government measures, including expansionary fiscal policies, increased subsidies for trade-in schemes, and initiatives promoting large-scale equipment renewal and upgrades, are anticipated to spur consumption and investment," it said.

Elsewhere in developing Asia, high-income tech exporters like Taiwan and South Korea will help fuel growth this year.

India will also remain one of the most robust economies, with GDP tipped to expand 7.0% this year and 7.2% the next, ADB said in the report. Though India's momentum slowed in the first half of 2024 it was still solid on the back of strong domestic demand, confirming South Asia as the fastest-growing subregion, according to ADB's forecasts.

The report also highlighted the macroeconomic threat posed by climate change, including extreme weather events.

"Policymakers must integrate climate-related risks into macroeconomic analyses and country development plans so that the region can build resilience against these threats," said Masatsugu Asakawa, president of the ADB.

Write to Amanda Lee at amanda.lee@wsj.com

(END) Dow Jones Newswires

September 25, 2024 05:03 ET (09:03 GMT)

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