DECEMBER 2016 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT HIGHLIGHTS ASIA’S ECONOMIES STEADY The outlook for developing Asia remains DESPITE GLOBAL UNCERTAINTY broadly as forecast in Asian Development Outlook 2016 Update. Despite an extraordinary and temporary growth dip affecting one of the region’s largest Growth outlook economies, this Supplement expects the region as a whole to expand by 5.6% in 2016, Developing Asia’s growth outlook continues to be stable despite a slight only 0.1 percentage points less than earlier downgrade to the 2016 forecast. The region is now expected to grow this year forecast, and by 5.7% in 2017, as forecast. by 5.6%, or 0.1 percentage points off the rate envisaged in Asian Development The People’s Republic of China is on Outlook 2016 Update as slower growth is now expected in India, one of the course to meet growth expectations of region’s largest economies. Growth is expected to edge back up to 5.7% in 2017, 6.6% in 2016 and 6.4% in 2017. East Asia as the pace envisaged in the Update. By subregion, growth forecasts are revised a whole is seen to expand by 5.8% this year slightly down for South Asia in 2016 and the Pacific in 2017 but otherwise and 5.6% in 2017 as growth stabilizes in the unchanged (Table 1). subregion in line with earlier forecasts. The combined growth forecast for the major industrial economies— India’s surprise demonetization of large the United States, the euro area, and Japan—is revised up from Update banknotes will likely dampen growth this projections as third-quarter outcomes in the US and euro area proved to be year, but South Asia remains the region’s stronger than expected. Robust consumer spending growth supported the fastest-growing subregion. It is now expected US economy, while supportive monetary policy and improving labor markets to grow in 2016 by 6.6%, or 0.3 percentage fueled growth in the euro area. Despite a stronger yen, the external sector points less than previously forecast, and in still led the expansion in Japan (Box 1). 2017 by 7.3%, as in the Update. Growth in the major Southeast Asian economies in the third quarter met projections and even surpassed them in East Asia Malaysia and the Philippines. In aggregate, East Asia’s growth outlook is maintained at 5.8% in 2016 and 5.6% in 2017. In the the subregion is still forecast to expand by People’s Republic of China (PRC), gross domestic product (GDP) grew by 6.7% 4.5% in 2016, picking up to 4.6% in 2017. in the first 9 months of this year. Private consumption and services were the The continued rise in commodity prices key drivers of growth, supported by steady wage growth and urban job creation. has not sufficed to offset fiscal drag in the Public investment in infrastructure also supported growth, but expansion in oil-producing economies of Central Asia. private investment remained weak, up by only 2.5% in the first 9 months of 2016 Forecasts in the Pacific are largely unchanged from the Update, though cyclone damage in Fiji is seen to be having a bigger impact on its economy than earlier envisaged. Although oil price prospects brightened The Asian Development Bank Regional Economic Outlook Task Force led the preparation with the agreement of major oil of the revised outlook for this Asian Development Outlook Supplement. The task force is producers to cut production beginning chaired by the Economic Research and Regional Cooperation Department and includes in 2017, inflation remains subdued. This representatives of the Central and West Asia Department, East Asia Department, Pacifi c Supplement retains the Update inflation Department, South Asia Department, and Southeast Asia Department. forecasts for the region at 2.6% in 2016 and 2.9% in 2017. isBn 978-92-9257-697-4 (print), 978-92-9257-698-1 (e-ISBN) Publication Stock No. Fls168578-3 2 AsiAN DEVELOPMENT OUTLOOK SUPPLEMENT over the same period last year because of sluggish external Table 1 Gross domestic product growth, developing Asia (%) demand. Exports also weighed on growth as their dollar 2015 2016 2017 value fell by 6.9% in the first 10 months of 2016 from the same ADO ADO period of last year. The PRC is still expected to grow by 6.6% 2016 ADOS 2016 ADOS in 2016. Consumption will remain the main growth driver Update Update for the rest of the year thanks to steady income growth. Government investment in infrastructure may accelerate Developing Asia 5.9 5.7 5.6 5.7 5.7 further, but private investment will remain constrained by an unfavorable business climate and an uncertain export Central Asia 3.0 1.5 1.5 2.6 2.6 outlook. Going forward, downward pressure on PRC Kazakhstan 1.2 0.1 0.1 1.0 1.0 growth will come from a declining working-age population, East Asia 6.1 5.8 5.8 5.6 5.6 an ongoing shift toward consumption and services and China, People's Rep. of 6.9 6.6 6.6 6.4 6.4 away from investment and manufacturing for export, and Hong Kong, China 2.4 1.5 1.5 2.0 2.0 convergence with slower-growing high-income economies. Korea, Rep. of 2.6 2.6 2.6 2.8 2.7 However, these forces can be countered by structural reform Taipei,China 0.6 0.9 1.2 1.5 1.6 that improves productivity. Despite continued monetary and South Asia 7.0 6.9 6.6 7.3 7.3 fiscal support, growth in 2017 is still expected to moderate to India 7.6 7.4 7.0 7.8 7.8 6.4% as forecast in the Update. Southeast Asia 4.4 4.5 4.5 4.6 4.6 Elsewhere in East Asia, growth forecasts for Taipei,China Indonesia 4.8 5.0 5.0 5.1 5.1 are revised upward from those in the Update as that Malaysia 5.0 4.1 4.2 4.4 4.4 economy has continued to show resilience toward the Philippines 5.9 6.4 6.8 6.2 6.4 end of the year. Preliminary third-quarter GDP data show Singapore 2.0 1.8 1.6 2.0 2.0 that the economy accelerated to grow by 2.1% year on Thailand 2.8 3.2 3.2 3.5 3.5 year as robust domestic demand was bolstered by strong Viet Nam 6.7 6.0 6.0 6.3 6.3 growth in both private and government consumption, as The Pacific 7.1 2.7 2.7 3.5 3.3 well as in investment. Exports of goods and services also gained strength supported by higher demand from the ADO = Asian Development Outlook, ADOS = ADO Supplement. Note: Developing Asia refers to the 45 members of the Asian Development Bank PRC for semiconductors. These encouraging signs prompt listed below. Central Asia comprises Armenia, Azerbaijan, Georgia, Kazakhstan, an upgrade to the Taipei,China growth forecast for 2016 the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. East Asia from 0.9% to 1.2%. The growth forecast for 2017 is likewise comprises the People’s Republic of China; Hong Kong, China; the Republic of upgraded, from 1.5% to 1.6%, as confidence has improved Korea; Mongolia; and Taipei,China. South Asia comprises Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. Southeast Asia since the new government completed its assumption of comprises Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic office and began carrying out projects that had been put on Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet hold before the presidential election. Nam. The Pacific comprises the Cook Islands, Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Palau, Papua New Guinea, Samoa, In the Republic of Korea, growth averaged 2.9% Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu. year on year in the first 3 quarters of 2016, supported by Sources: Asian Development Bank. 2016. Asian Development Outlook 2016 Update; domestic demand. Private consumption expanded by 2.7%, Asian Development Bank. 2016. Pacific Economic Monitor, December; Asian outpacing 1.8% growth in the same period last year. With Development Bank estimates. the government spending up by 4.0%, total consumption expanded by 3.0%. Investment grew by 5.1% on strong construction boosted by low interest rates, which outweighed spending growth accelerated to 1.2% year on year from 0.5% declines in plant and equipment. On the supply side, industry in the second quarter, while overall investment rebounded and services continued to expand. However, GDP growth strongly by 6.0% after declining for 4 successive quarters. in the third quarter was weaker than in either the first half Machinery and equipment acquisition drove the rebound or the third quarter last year. Given a still fragile external as it returned to positive growth after contracting by double environment and the likely impacts of ongoing corporate digits since the third quarter of 2015. Exports of goods restructuring and heightened political uncertainty, growth is grew steadily as demand continued to improve from major expected to remain weak in the coming quarters. The GDP export markets, particularly in Asia. The growth forecast is growth forecast for 2016 is maintained at 2.6%, but that for maintained, as in the Update, at 1.5% for 2016 and picking 2017 is downgraded to 2.7%. up to 2.0% in 2017 as external performance continues to In Hong Kong, China, GDP grew by 1.9% year on stabilize and shore up business sentiment.