Growth is forecast to accelerate in two-thirds of the region’s economies and in all of the subregions except East Asia. The external environment generally supports growth. A projected mild rise in commodity prices will help oil and gas exporters but not at the expense of importers.
Average growth in developing Asia slows, upstaging higher projections for most economies. Growth is forecast to accelerate in two-thirds of the region’s economies and in all of the subregions except East Asia. The external environment generally supports growth. A projected mild rise in commodity prices will help oil and gas exporters but not at the expense of importers. Demand for the region’s exports in general will benefit from an expected pickup in the major industrial economies and the Russian Federation. However, country-specific factors still generate considerable diversity in expected growth and inflation across the region.
East Asia’s growth slowdown reflects continued moderation in the PRC. Subregional growth dipped by 0.1 percentage points to 6.0% in 2016. The PRC slowed to 6.7% despite fiscal and monetary support as private investment weakened. Growth also dipped in Mongolia as construction faltered and in Hong Kong, China as tourist arrivals dropped. The rate is projected to moderate further in the PRC to 6.5% this year and 6.2% next as structural reform continues and the authorities emphasize financial stability. This will push the subregional average down to 5.8% in 2017 and 5.6% in 2018. Yet large government outlays will lift growth in Taipei,China and Hong Kong, China this year and the next. Mining investment will buoy growth in Mongolia, and the return of political stability in the Republic of Korea should pay a mild growth dividend in 2018. Inflation accelerated in East Asia last year but slowed in Mongolia on lower meat prices. It is expected to pick up modestly from 1.9% in 2016 to 2.3% in 2017 and 2.6% in 2018.
South Asia resumes faster growth after a brief pause. Subregional growth dropped by 0.5 percentage points to 6.7% in 2016 on account of slowing growth in India. Despite stronger government consumption and external demand, growth faltered in India to 7.1% from 7.9% in 2015 as fixed investment languished and demonetization temporarily stymied commerce. Growth in South Asia is forecast to rebound to 7.0% in 2017 and pick up further to 7.2% in 2018. India will see growth reaccelerate to 7.4% in fiscal 2017 and 7.6% in 2018 despite drag caused by excessive corporate investment in the past and bank lending currently constrained by a heavy load of stressed assets. Elsewhere, growth will be lifted by spending on earthquake reconstruction in Nepal, hydropower investment and output in Bhutan, and economic corridor investment from the PRC in Pakistan. Inflation in South Asia has trended lower in recent years, easing to 4.6% in 2016 as buyers benefited from low prices for oil and other commodities. With these prices turning upward over the forecast period, inflation in South Asia is projected to revive to 5.2% in 2017 and 5.4% in 2018.
Southeast Asian prospects brighten with buoyant growth across the subregion. Economic expansion accelerated by 4.7% in 2016, up by 0.1 percentage points from the previous year, as growth edged higher in several larger economies: Indonesia, the Philippines, Singapore, and Thailand. With normal weather supporting agriculture and steady recovery in the major industrial economies boosting exports, growth will pick up in nearly all of the economies in the subregion, nudging average growth to 4.8% in 2017 and 5.0% in 2018. The only exception is the Philippines, where growth will moderate from its record 6.8% in 2016 to a pace approximating 6.5% this year and next. While higher infrastructure investment will provide an additional impetus to growth in Brunei Darussalam, Indonesia, the Lao People’s Democratic Republic, the Philippines, and Thailand, record foreign direct investment will be a key factor supporting growth in Viet Nam. Strengthening growth and rising international oil prices will mean higher inflation and a narrower current account surplus for the subregion. Average inflation is forecast to rise from 2.1% in 2016 to 3.3% this year, edging up further to 3.5% next year.
Central Asia looks forward to a modest growth rebound. Continued low oil prices, recession in the Russian Federation, and weakness in other trading partners cut growth in Central Asia to 2.1% in 2016 from 3.1% a year earlier. Declining oil revenues hit Kazakhstan and Azerbaijan particularly hard, with the latter falling into recession. Anticipated recovery for international oil prices and for growth in the Russian Federation are projected to boost expansion in the subregion to 3.1% in 2017. Growth will accelerate further to 3.5% in 2018 as every economy except Kazakhstan improves its performance. The lagged effects of currency depreciation in Azerbaijan and Kazakhstan, and to a lesser extent in Tajikistan, stoked inflation by almost 5 percentage points to 11.1% in 2016, even as inflation slowed in Georgia, the Kyrgyz Republic, Turkmenistan, and Uzbekistan and sank into deflation in Armenia. As the effects from currency depreciation abate, inflation is projected to decelerate to 7.8% in 2017 and 7.3% in 2018.
The Pacific will see growth revive on developments in Papua New Guinea. Growth slowed substantially to 2.6% in 2016 as contraction hit the oil and gas sector in Papua New Guinea, slashing the growth rate in the subregion’s predominant economy by 10.0 percentage points to 2.0%. Elsewhere, growth picked up in 2016 in most Pacific economies—by more than 4 percentage points in Nauru, Samoa, and Vanuatu. Increased mining and agriculture output is forecast to spur a mild recovery in Papua New Guinea, which will translate into a modest rebound for the subregion to 2.9% growth this year and 3.3% next. Steady or slower growth is expected in most other economies, with declines in public expenditure inducing relatively sharp slowdowns in Nauru, Samoa, and Timor-Leste. Although inflation eased in most economies in 2016, the aggregate inflation rate rose by 0.6 percentage points to 4.6%, driven by rising consumer prices in Papua New Guinea. Rising oil and food prices will push inflation higher in most of the economies this year. Subregional inflation is expected to be 5.2% in 2017 and 5.4% in 2018.