ADB sees Asia's 2018 growth at 6 percent, but warns of trade risks

By Manolo Serapio Jr and Enrico Dela Cruz

MANILA (Reuters) - The Asian Development Bank raised its 2018 economic growth estimate for developing Asia to 6.0 percent from 5.8 percent, citing solid export demand, but said U.S. protectionist measures and any retaliation against them could undermine trade.

Growth in developing Asia would only ease slightly to 5.9 percent in 2019, the bank said in its 2018 Asian Development Outlook released on Wednesday. Strong external and domestic demand helped economies in the region expand by an average 6.1 percent last year.

While protectionist trade measures by the United States so far this year have yet to dent trade flows to and from Asia, the risks are there, the Manila-based institution said.

 

"Further actions and retaliation against them could undermine the business and consumer optimism that underlies the regional outlook," the ADB said.

China has blamed the United States for trade frictions amid escalating threats of tariffs on billions of dollars worth of goods between the world's two biggest economies, sparked by U.S. frustration with China's trade and intellectual property policies.

Another risk to Asia's growth, the ADB said, is "diminishing capital inflows if the U.S. Federal Reserve needs to raise interest rates faster than markets expect." The Fed last raised rates in March and policymakers signaled two or three more hikes this year.

The ADB now expects China's economy to grow 6.6 percent this year, faster than the bank's prior estimate of 6.4 percent made in December, and by 6.4 percent in 2019.

China has set a growth target of around 6.5 percent this year, the same as last year, which it handily beat with an expansion of 6.9 percent.

China's growth will moderate "as economic policy leans further toward financial stability and a more sustainable growth trajectory," ADB said.

By region, South Asia will remain the fastest growing in Asia Pacific, with the ADB pegging expansion this year at 7.0 percent and 7.2 percent in 2019.

Despite growth easing to 6.6 percent in 2017, India's economy is projected to bounce back to 7.3 percent in 2018 and to 7.6 percent in 2019 as the country's new tax regime improves productivity, the ADB said.

Banking reform and corporate deleveraging are also taking hold, which could reverse a downtrend in investment, the bank said.

Growth in Southeast Asia is forecast at 5.2 percent for this year and next, the same pace as 2017, while Central Asia is projected to slow to 4 percent in 2018 before picking up to 4.2 percent next year.

(Reporting by Manolo Serapio Jr. And Enrico dela Cruz; Editing by Kim Coghill)