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Asia

Developing Asia to remain 'main driver of global growth'

Asia's big economies are set to grow by 6.3 percent this year and 2016, said the ADB in its annual report. But what is driving this growth and what are the risks involved? DW talks to ADB chief economist Shang-Jin Wei.

The region's strong economic growth of 6.3 percent - the same as last year - will be supported by soft commodity prices and recovery in the major industrial economies, said a new Asian Development Bank (ADB) report, released on Tuesday, March 24.

According to the Asian Development Outlook 2015, India is forecast to overtake China in terms of economic growth as the initial phase of government efforts to remove structural bottlenecks is lifting investor confidence. "With the support of stronger external demand, India is set to expand by 7.8 percent in FY2015 - ending 31 March 2016 - a sharp rise from 7.4 percent growth in FY2014. This momentum is expected to build to 8.2 percent growth in FY2016, aided by expected easing of monetary policy and a pickup in capital expenditure," said the paper.

Shang-Jin Wei

Shang-Jin Wei: 'India's economy will grow faster than that of China's'

As for China, growth is expected to slow to 7.2 percent in 2015 and 7.0 percent in 2016. This is a much more moderate rate than the average growth of 8.5 percent in the period since the global financial crisis. Across the sub-regions, economic growth in East Asia will slow to 6.5 percent in 2015 and 6.3 percent in 2016 reflecting the moderation in China.

Growth in South Asia is projected to trend higher to 7.2 percent in 2015 and 7.6 percent in 2016, and Southeast Asia is poised for a growth rebound of 4.9 percent in 2015 and 5.3 percent in 2016 as recovery in Indonesia and Thailand leads the way, and with most of the sub-region expected to benefit from rising exports and lower inflation, said to the report.

In a DW interview, Shang-Jin Wei, the bank's chief economist explains why he believes developing Asia will continue to be the main driver of global growth in the next couple of years.

DW: What are the main factors driving growth in developing Asia in 2015 and 2016?

Shang-Jin Wei: The main factors are the reforms undertaken in many of these countries, the recovery in high income countries such as the United States, Europe and Japan and, last but not least, the reduction in commodity prices. The all will help to sustain growth, but this will be tempered by moderate growth in China.

As you mentioned, economic growth in China, Asia's largest economy is expected to slow down. Is there any reason for concern?

China's expected growth rate of 7.2 percent in 2015 and 7.0 percent in 2016 is still relatively healthy as we see that many of the ongoing government reforms affecting state-owned firms and the financial sector have the potential to increase productivity. The impact of these reforms could thus offset some of the moderating forces currently at work such as a declining work force, rising labor costs and a strong value of the Chinese RMB.

But there are also risks involved if some of these reforms aren't carried out appropriately, if the US or European economies slow down, or if oil prices rebound more strongly than expected.

How is structural reform expected to affect growth in India?

Our forecast that India's economy will grow faster than that of China's is based on the assumption that many of the structural reforms promised by the Narendra Modi-led government will be implemented - although we don't believe that all of them will be carried out overnight.

The key reforms include more flexible labor market laws, a more efficient land acquisition process, simplification of regulations, and increased investment in major infrastructure projects. But none of these reforms can be taken for granted. As recent news suggests, the political process could slow down some of these changes.

How will the ASEAN Economic Community (AEC) impact growth within the 10-nation bloc in 2016?

The member countries of the AEC, which is set to be launched by the end of this year, have a very ambitious reform agenda. To understand the effects, ASEAN can be divided in two groups the high to middle-income nations and the new members such as Myanmar and Cambodia.

For the latter, one of the main benefits of the AEC will be that it will speed up the reforms necessary to create an environment much more friendly to growth and job creation. Myanmar, for instance, will be able to better integrate itself in regional and global value chains so that its labor force can be utilized more productively.

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Shang-Jin Wei: 'Reforms cannot be taken for granted'

For higher income ASEAN members, the AEC will allow a free flow of goods, services, and investments, as well as freer flow of capital and skills. Moreover, it should enable investors to increase their market reach and grant ASEAN-based companies access to raw materials, production inputs, services, labor, and capital wherever in ASEAN they choose to set-up their operations.

Will Developing Asia remain the main source of global growth in 2015-2016?

Yes. From the trough of the global financial crisis in 2009, the region contributed 2.3 percentage points to global GDP growth - nearly 60 percent of the world's annual 4.0 percent pace.

Eight economies in the region posted growth exceeding 7.0 percent in nearly every year of the post-crisis period, including China, the Lao People's Democratic Republic, and Sri Lanka. However, the oil and mineral exporters among those with consistently rapid growth may see their fortunes turn in the coming years as commodity prices stumble.

Shang-Jin Wei is chief economist at the Manila-based Asian Development Bank (ADB).

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