ADB cuts GDP growth forecast for India and rest of developing Asia

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Aden - Yasmine El Tohamy - Persistent trade tensions taking toll, are still biggest risk to longer-term economic outlook

The Asian Development Bank (ADB) on Wednesday scaled down its forecast for India's economic growth in 2019-20 to 5.1 per cent as the foundering of a major non-banking financial company in 2018 led to a rise in risk aversion and a credit crunch amid slow job growth and rural distress aggravated by poor harvest.

The ADB also lowered its growth forecasts for developing Asia in 2019 and 2020, saying weaker outlook for China and India indicated softer economic activity elsewhere in the region.

In September, the ADB forecast India's GDP to grow 6.5 per cent in 2019-20 and 7.2 per cent in the year thereafter. It said India's growth should pick up to 6.5 per cent in the next fiscal year with supportive policies.

Last month, Moodys Investors Service cut India's economic growth forecast for current year to 5.6 per cent from 5.8 per cent estimated earlier, saying GDP slowdown is lasting longer than previously expected. It expected economic activity to pick up in 2020 and 2021 to 6.6 per cent and 6.7 per cent, respectively, but the pace to remain lower than in the recent past.

India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 per cent to 5 per cent in the second quarter of 2019 and joblessness rising.

"While growth rates are still solid in developing Asia, persistent trade tensions have taken a toll on the region and are still the biggest risk to the longer-term economic outlook," ADB chief economist Yasuyuki Sawada said. "Inflation, on the other hand, is ticking up on the back of higher food prices, as African swine fever has raised meat prices significantly," Sawada added.

In East Asia, growth in China is now expected at 6.1 per cent this year and 5.8 per cent next year due to trade tensions and a slowdown in global activity coupled with weaker domestic demand, with family wallets being hit by meat prices that have doubled relative to a year ago.

Growth could accelerate, however, should the US and China come to an agreement on trade, the report says. In September, ADB forecast GDP growth of 6.2 per cent in 2019 and 6 per cent in 2020.

Hong Kong, already in a technical recession, will see severe downward pressures persist possibly into 2020. The economy is now expected to contract 1.2 per cent this year and grow 0.3 per cent next year.

In Southeast Asia, many countries are seeing continued export declines and weaker investment, and growth forecasts have been downgraded for Singapore and Thailand.

GDP growth is expected to slow in the Pacific with activity in Fiji, the subregion's second-largest economy after Papua New Guinea, expected to be more subdued than previously anticipated.

Central Asia is the only subregion where prospects look a little brighter now than in September, largely thanks to increased public spending in Kazakhstan, the region's largest economy. Central Asia is now forecast to grow 4.6 per cent in 2019, up from the previous prediction for expansion of 4.4 per cent. The forecast for 2020 is for growth of 4.5 per cent. Kazakhstan's economy is seen expanding by 4.1 per cent this year and 3.8 per cent next year.

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Issac John

Editorial Director of Al Khaleej Today, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Al Khaleej Today. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.

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