Depth report

　　

The Asian Development Bank released an updated report on the "Asia Development Outlook 2018" on September 26. ADB still predicts that the gross domestic product (GDP) growth rate of Asian developing countries will reach 6.0% in 2018, but it will forecast the growth in 2019. Decrease by 0.1 percentage point to 5.8%. Excluding high-income emerging economies in Asia, the region’s economic growth will reach 6.5% and 6.3% this year and next.

 　 The report believes that the efforts of Asian countries to establish trade agreements within and outside the region are in sharp contrast to the rise of protectionism. However, ADB economist Pei Deming said that ADB believes that the biggest risk facing the region is the impact of the continued deterioration of trade on the cross-border production network, cutting off business relations and forcing the cancellation of investment plans. Although the return of global trade deployment to Southeast Asia will benefit some economies (especially Southeast Asian economies) in the medium term, its indirect impact will reduce the development and investment confidence of the entire region, especially if auto tariffs are raised. It will also affect the stability of the financial market.

 　 However, ADB's economic growth expectations for the Asian region this year and the next two years remain basically stable. The report believes that strong domestic demand is driving the development of the region's largest economy, while rising oil and natural gas prices are promoting economic growth in energy exporting countries such as Kazakhstan. The Indian economy continues to maintain strong growth, and the economic growth rate is still expected to reach 7.3% in 2018. With the temporary impact of India's implementation of large-scale non-monetization policies and the introduction of national goods and services taxes, the temporary impact of measures such as the introduction of national goods and services taxes gradually fades. At 7.6%. Although the continuous tightening of fiscal policy will help ease inflationary pressures, the depreciation of the rupee, fluctuations in external financial markets and acceleration of inflation will still pose challenges. In Southeast Asia, economic growth in 6 out of 10 countries is slowing, and it is expected to grow by 5.1% in 2018, which is a decrease of 0.1% compared to the previous year. The surge in imports from Indonesia, the Philippines, Thailand, and Vietnam has provided support for government infrastructure investment, which has slowed net export growth. Although the downside risks are increasing, the economic growth rate in 2019 will be the same as the forecast in April 2018, reaching 5.2%. The increase in oil and natural gas prices, exports and investment in Central Asia have driven up the economic growth rate slightly, which is expected to reach 4.1% this year.

Formulate policies to deal with economic vulnerabilities

 ADB’s confidence in Asian economic growth comes from the fact that policy makers in the region have formulated a wide range of plans to ensure that as the monetary policy of advanced economies normalizes and global trade tensions escalate, increasing global uncertainty will not affect the economy. The continuous development of the region for decades has had a negative impact. At the same time, ADB has also given further recommendations on policy formulation, stating that policy makers should pay attention to the vulnerability of the economy brought about by negative impacts.

 　 According to the ADB, a new round of vulnerabilities such as rising debt levels, increased volatility of capital flows, sharp currency devaluations, soaring housing prices and cross-border transmission may undermine stability. Countercyclical fiscal policy can help stabilize the economy, but sufficient fiscal space needs to be given. In addition to reducing debt or expanding the tax base, the government can also increase investment in strengthening countercyclical fiscal buffering capabilities. In addition, since there is often a time difference between the credit cycle and the business cycle, ADB recommends that the monetary policies of all countries should pay attention to both cycles at the same time.

 　 While increasing exchange rate flexibility to protect the economy from negative external shocks, ADB recommends that the monetary authorities take measures to slow down large fluctuations; or increase the control of capital flows to reduce exchange rate pressure. Since the outbreak of the global financial crisis, more countries have adopted macro-prudential policies, such as setting ceilings on loan ratios and debt-to-income ratios. In the world, Asia has the highest application rate of macro-prudential policy measures.

 　 In addition, ADB believes that strengthening the implementation of macroeconomic and other fundamental measures remains crucial. In addition, various tasks need to be continuously promoted to ensure the formulation of sound fiscal policies, stabilize the independence of the central bank, coordinate domestic policies, deepen fiscal sector reforms and market-oriented structural reforms, and expand and improve the social safety net.

Maintain China's economic growth forecast for this year

 　 The strong growth and monetary and fiscal policies support the normal operation of the Chinese economy, but the slowdown in demand growth and the unfavorable trade environment have had an impact on China's economic growth expectations in 2019. ADB maintained China’s economic growth forecast for this year at 6.6%, but it slightly lowered its forecast for next year from 6.4% to 6.3%.

 　 In the first half of this year, the contribution of consumption to China's GDP growth increased from 4.4 percentage points to 5.3 percentage points. As local governments control local debt by cutting infrastructure spending, the growth of infrastructure investment in the first eight months of 2018 slowed down significantly, from 19.8% in the same period in 2017 to 4.2%. In addition, the contribution of net exports to economic growth in the first half of 2018 also fell by 0.7%.

 　 ADB believes that the continued deterioration of Sino-US trade relations will have a certain impact on net exports, which will further lower the growth forecast for 2019. However, in the coming months of 2018, services and consumption will continue to boost the Chinese economy. In terms of policy, supportive monetary and fiscal policies can help alleviate short-term pressure, but continuous reforms are still needed to maintain long-term growth.

 Li Yanzhu, Director of the Economic Department of the ADB Representative Office in China, told a reporter from the Economic Information Daily that in the first half of the year, the government adopted a number of measures to control expenditures, including infrastructure expenditures. Since July, there has been a slight slackening in finances and the rapid growth of local government special bonds. These funds will be available and impacted in the next two to three months to offset the negative impact of the trade conflict. China needs to make choices in controlling off-budget expenditures and supporting the economy.

 　 ADB senior economist Zhuang Jian said that the reform of personal income tax has attracted much attention. It can release consumption potential by reducing tax burden. Many measures will take effect next year and will have a greater impact by then.

 　 In response to the recent currency turmoil in emerging economies, Pei Deming believes that China and these economies have different economic structures, including very different capital accounts and economic scales. Currency fluctuations in these economies have a limited impact on China's future economic growth.