India is Asia's new growth engine

Added 22nd September 2015

While external demand weakness and a slower-than-expected pace of economic reforms have impacted India's GDP growth, the economy shows signs of health, according to an Asian Development Bank report.

India is Asia's new growth engine

India's GDP growth for FY2016 is now forecast at 7.8%, below the earlier forecast of 8.2%, according to ADB. However, several underlying factors suggest the economy will rebound. 

"Inflation is trending down, crude oil import prices have fallen sharply, and tax revenue and net foreign direct investment inflows are up. [This] augurs well for a bounce back in the economy," Shang-Jin Wei, ADB's chief economist said. 

By comparison, China GDP forecast is 6.9%, according to the state-affiliated Chinese Academy of Social Sciences. However, many investors do not believe the official growth figures and some estimates put actual GDP growth anywhere from 3%-5%.

Southeast Asia slowdown

ADB's observations on India are aligned with industry sources. Earlier this month, Nikko Asset Management disclosed that it holds a favourable view toward India. Al Clark, Nikko AM's global head of multi-asset, noted that India is a good defensive allocation as the economy is "fairly insulated", making it less susceptible to the impact of China's slowdown.

The bank noted that Southeast Asia was "bearing the brunt of the slowdown in China" as it lowered its 2015 growth forecast for the region to 4.4% from 4.9%

"Net capital outflows from developing Asian markets which gained pace in the first part of 2015, exceeding $125bn in the first quarter, remain a concern as investors anticipated a near term US interest rate hike. As a consequence the region has seen rising risk premiums and weakening exchange rates, which could further impede growth momentum," ADB said.

ADB noted that it is imperative that Southeast Asia find a balance between stabilising the financial sector and stimulating domestic demand.

"Continuing steps to build liquid, well-developed domestic financial markets can help reduce the corporate sector's reliance on foreign currency borrowings," ADB said. 

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