India’s revival to offset China slowdown: ADB

Locals play cricket in Kolkata, India.
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China's economy is slowing, but Asia will remain a growth hot spot as India and Southeast Asian economies roar ahead, said the Asian Development Bank (ADB).

Emerging Asian economies will grow 6.3 percent in both 2015 and 2016, unchanged from last year, ADB wrote in its annual Asian Development Outlook for 2015, published on Tuesday.

"Developing Asia is making a strong contribution to global economic growth," said Shang-Jin Wei, chief economist at the ADB.

"Falling commodity prices are creating space for policy makers across the region to cut costly fuel subsidies or initiate other structural reforms. This is a key opportunity to build frameworks that will support more inclusive and sustainable growth in the longer term," he said.

China vs India

China's gross domestic product (GDP) growth will continue to diminish to 7.2 percent in 2015 and 7 percent in 2016, as the government proceeds with its structural reform agenda and fixed asset investment slows, ADB said.

The world's second largest economy expanded 7.4 percent in 2014, its slowest pace in 24 years, undershooting the government's target for the first time since 1998.

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India's economy, in contrast, is poised to take off, as the initial phase of government efforts to remove structural bottlenecks lifts investor confidence and external demand picks up.

The economy is forecast to grow 7.8 percent in fiscal year 2015-2016, a notable rise from 7.4 percent growth in the previous fiscal year.

Inside India's economic transformation

This momentum is expected to build further to 8.2 percent growth in fiscal 2016-2017, boosted by easing of monetary policy and a recovery in capital expenditure.

"With improving external demand for the region's outputs, an expected pickup in India and in most members of the Association of Southeast Asian Nations (ASEAN), could help balance gradual deceleration in the PRC [People's Republic of China], the region's largest economy," said ADB.

Growth in Southeast Asia is set to rebound to 4.9 percent in 2015 and 5.3 percent in 2016, from 4.4 percent in 2014, with Indonesia and Thailand leading the way.

Risks to Asia's economic stability

There are several risks to Asia's economic outlook, originating from home as well as abroad, ADB warned.

"Risks to the outlook include possible missteps in the PRC as it adjusts to its new normal, less decisive action on reforms in India than anticipated, potential spillover effects on the global economy of the Greek debt crisis and the deepening recession in the Russian Federation," it said.

Adding to this, the impending rise in U.S. interest rates, which could reverse capital flows to the region, requiring monetary responses to maintain stability, ADB said.