BEIJING: A lot of risks and opportunities the Asia region’s economies face in 2015. Japan has returned to recession, and growth in Asia’s developing countries is expected to slow down, Economist Rajiv Biswas said.
As China’s economic expansion moderates and Japan struggles to come out of its third recession in two years, economists have revised down forecasts for several economies in the region. On December 17, the Asian Development Bank (ADB) said the regional gross domestic product (GDP) would slide to 6.1 percent in 2014 from an initially estimated 6.2 percent, and 6.2 percent in 2015, down from 6.4 percent.
Growth projections for Central Asia, East Asia, and Southeast Asia are all revised downward. China’s declining real estate prices and knock-on effects on the construction sector are set to slow growth down to 7.4 percent in 2014 and 7.2 per cent in 2015, the bank said. However, no change was expected for South Asia. And the Pacific region’s growth outlook is adjusted upward.
In a DW interview, Rajiv Biswas, Asia-Pacific Chief Economist at the analytics firm IHS, says the region will be entering 2015 amidst significant economic challenges. Nonetheless, a positive factor supporting the economic outlook could be the sharp decline in world oil prices during the second half of 2014.
Rajiv Biswas: The Asia-Pacific (APAC) region is entering 2015 amidst significant economic challenges. China, Asia’s largest economy, is facing some moderation in growth momentum as well as persistent economic imbalances from the slump in residential construction and rising problem loans due to the rapid expansion of credit since 2009. Meanwhile Japan, Asia’s second largest economy, slumped into recession in the third quarter of 2014 as the impact of the sales tax hike in April 2014 resulted in a sharp decline in household consumption.
However, the overall APAC growth outlook for 2015 has been given a considerable boost by the sharp decline in world oil prices in the second half of 2014. Overall GDP growth in the region is therefore forecast to be around 4.7 percent in 2015, similar to the 4.6 percent growth rate in 2014, strengthening to 5.1 percent by 2016.
India was in an economic crisis during 2013, but now looks set to be one of the best emerging markets recovery stories for 2015. The Indian economic turnaround is being helped by the sharp decline in oil prices, since India is heavily dependent on imported oil. Inflationary pressures have fallen sharply during recent months, and Indian central bank governor Raguram Rajan is signaling that monetary easing is likely in early 2015. The combination of monetary policy stimulus and the economic reforms of the new Modi government could drive a significant Indian economic recovery over the medium-term.
Among the Asian frontier markets, Vietnam is also a very exciting economic recovery story. In 2010-2011, the Vietnamese economy was in crisis, with soaring inflation and external account difficulties, with foreign exchange reserves at critically low levels. Since then, there has been a remarkable turnaround, with inflation estimated to be 4.1 percent in 2014, easing to 3.5 percent by 2015. Meanwhile, GDP growth is forecast to strengthen to six percent in 2015, helped by the rapid emergence of a significant electronics manufacturing export cluster in Vietnam over the last four years. There has also been significant foreign direct investment into Vietnam to establish two large new petrochemicals projects, which will help to strengthen Vietnam’s manufacturing sector. However a key vulnerability remains the banking sector, which is struggling with very high non-performing loans and requires considerable restructuring.
Also, Asia’s largest economies – China and Japan – will continue to face headwinds in 2015. Japan is struggling with the impact of ageing demographics and very high government debt levels, which limit its long-term GDP growth potential to around one percent per year. China is also facing moderating growth.