Developing countries in Asia and the Pacific are forecast to grow at anaverage of 5.8 per cent this year, up from 5.6 per cent in 2014, driven byimproved economic performances in Bangladesh, India, Indonesia, Papua NewGuinea, Republic of Korea and Thailand, according to updated forecasts bythe United Nations Economic and Social Commission for Asia and the Pacific(ESCAP) in its Economic and Social Survey of Asia and the Pacific 2014:Year-end Update. The report also highlights that growth in the regionremains below pre-crisis levels.
Structural reforms in India and Indonesia are projected to help increasetheir growth to 6.4 and 5.6 per cent, respectively, from 5.5 and 5.2 percent, respectively, in 2014. Growth in China is forecast to hover around 7per cent in 2015 consistent with the ongoing economic rebalancing.
A decrease in regional inflation this year to 3.5 from 3.9 per cent in2014, offers room in some regional economies for loosening monetarypolicies to support growth, indicates the Year-end Update, which wasunveiled by United Nations Under-Secretary-General and ESCAP ExecutiveSecretary Dr. Shamshad Akhtar.
“Despite improved prospects many developing economies in the region facestructural constraints which have kept them from realizing their growthpotential. Infrastructure shortages remain acute and growth has nottranslated into enough decent jobs,” Dr. Akhtar said.
The steep decline in oil prices in recent months may be the start of alonger-term trend and will have a significant, yet varying impact acrossthe region. The Year-end Update estimates that for energy-importingcountries, a $10 per barrel fall in the oil price in 2015 would translateinto an increase in GDP growth of up to 0.5 percentage points.
However, it could reduce growth in the Russian Federation, a net energyexporter, by 1.1 percentage points and deprive neighbouring Central Asiancountries of $1.7 billion in remittances from nationals working in theRussian Federation.
While a recovering United States economy will support growth inAsia-Pacific exporting economies, slow growth in the eurozone and Japanwill be a challenge as will be China’s moderating growth. ESCAP also alertsthe region to brace for capital outflows following an expected raising ofinterest rates by the US Federal Reserve although this could be buffered tosome extent by new financial injections by the eurozone and Japan.
ESCAP also projects higher growth in all Asia-Pacific subregions in 2015,except North and Central Asia where it is expected to decline to 0.2 from1.0 per cent in 2014, mainly due to the difficult outlook for the RussianFederation. The Russian Federation accounts for almost 80 per cent of theGDP of North and Central Asia subregion.
Among the growth drivers in the region, Thailand’s economy, after the sharpslowdown to 0.8 per cent in 2014, is forecast to grow by 3.9 per cent dueto increased short-term consumer and investor confidence following the endof the protracted political instability.
Constraints and opportunities
Likely capital volatility in 2015, triggered by developed world monetarypolicies could slash Asia-Pacific GDP growth by up to 0.7 percentagepoints, ESCAP estimates, advocating sound macroeconomic management andmacroprudential policies to address this.
On the domestic front, developing countries in the region need to bridgephysical and social infrastructure gaps that need an annual investment of$815 billion, according to the Year-end Update. It outlines ways toincrease infrastructure financing and recommends labour market reforms toincrease decent job opportunities.
Declining global oil prices are a valuable opportunity for Asia-Pacificeconomies to reduce fuel subsidies that account for a large share ofnational budgets in many countries in the region. Regressive fossil fuelsubsidies more often benefit the rich and have little impact on reducingpoverty. The savings from a cut in these could be better invested into moreproductive and inclusive development, says the report.
ESCAP estimates that savings from energy subsidies could, for example,finance the provision of income security to all elderly and persons withdisabilities as well as universal access to health and education inIndonesia, Malaysia, Philippines and Thailand.
“This is a particularly critical and opportune time to decrease subsidies,”the ESCAP Executive Secretary said, noting that this would not only reducebudgetary strains but also prepare governments for the near future whenglobal financing may be even more challenging to secure.
“Reducing subsidies can raise significant public financial resources forproductive investment in the region and could make needed funds availablefor financing sustainable development,” Dr. Akhtar closed.
http://www.unescap.org/resources/economic-and-social-survey-asia-and-pacific-2014-year-end-update