The Asian Development Bank has just cut its forecasts for economic growth in the region on the back of slower expansion in China and India, but the lender's chief economist Shang-Jin Wei believes there are still rich opportunities for Ireland in Asia.
In an update to its Asian Development Outlook, the bank now sees gross domestic product growth for Developing Asia, which groups 45 countries in Asia-Pacific, coming in at 5.8 per cent in 2015 and 6 per cent in 2016 – below the March forecasts of 6.3 per cent for both years.
"One shouldn't be overly pessimistic. Asia as a whole is still relatively resilient and is perhaps likely to remain the overall largest global growth in years to come," Mr Wei told The Irish Times.
He said India was likely to grow faster than China in years to come and there were opportunities there, and that many more countries in Asia would start to become a source of outbound foreign investment, especially China. They are potentially looking at Europe. These are all still potential opportunities for Ireland, he said.
In China, the world’s second largest economy, growth has slowed on the back of slower investment and weak exports.
The Manila-based lender sees growth of 6.8 per cent in China in 2015, down from 7.2 per cent projected earlier, and below the 7.3 per cent growth seen in 2014.
Intrinsically harder
“Because the country is growing so fast for so long, our expectations are for success. China is trying to switch to different ways of growing – more innovation based, more productivity based. Those new ways are intrinsically harder, and therefore tend not to produce the same kind of growth rates,” said Mr Wei.
China up until four years ago had very favourable demographics, with more people working than ever before. Now you have too few young people entering the labour force while the ratio of retirees is higher, he said.
The brunt of the impact of a slowing China is being felt in southeast Asia – one of its key markets – as well as subdued demand from industrial countries, with growth in 2015 in the region now seen at 4.4 per cent, before bouncing back to 4.9 per cent in 2016.
Foreign currency exposure
A strengthening US dollar poses a threat to Asian companies with large foreign currency exposure, with data showing that the share of foreign currency debt among firms in
Vietnam
,
Sri Lanka
, and
Indonesia
exceeds 65 per cent.
Meanwhile, weak external demand and the slower-than-expected pace of enacting key reforms are holding back India’s growth acceleration, with expansion in 2015 now seen at 7.4 per cent, down from 7.8 per cent forecast earlier.
Taking strong proactive measures to get more women into productive, well-paid jobs, entrepreneurship, and leadership positions will bring multiple and long-lasting economic and social benefits to developing Asia, he said.
In a special theme chapter, “Enabling Women, Energising Asia”, the report notes that Asia’s economic boom has delivered many dividends to girls and women in areas such as literacy, life expectancy, and reduced female infant and child mortality rates.
"Women are an underused source of growth potential in Asia. In China, Japan and Korea, all these countries are facing the problem of ageing and they are making a strong effort to improve the participation rate," said Mr Wei.
In China, the female participation rate is comparatively high, but women’s retirement age is five years earlier than men. “With life expectancy increasing, perhaps that is something that might change,” said Mr Wei.
Overall, Mr Wei believes that Developing Asia would remain the largest contributor to global growth, even as growth cools, but currency pressures and capital outflows remained a risk. “In order to be resilient to international interest rate fluctuations and other financial shocks, it is important to implement macroprudential regulations that, for some countries, may entail some capital flow management such as limiting reliance on foreign currency borrowing,” said Wei.
