ADB Lowers India's Economic Growth Forecast For Current Fiscal Year From 11% To 10%, ASEAN Nations And Japan Too Revised Downwards

The Asian Development Bank (ADB) has downgraded economic growth forecast for India and South East Asian nations due to the effects of the more virulent COVID-19 delta variant.

In a new report 'Asian Development Outlook Supplemental' released today (Jul 20), the ADB revised India's current financial year growth to 10 per cent on Tuesday, from 11 per cent projected in April, on account of the adverse impact of the latest wave of coronavirus pandemic.

While economic growth gained momentum in developing Asia in the first quarter of 2021, the recent outbreaks of COVID-19, driven in part by new variants, will act as a drag on recovery in several economies.

The growth projection for the sub region of Southeast Asia been slashed to 4.0% from 4.4% after a new wave of infections prompted fresh lockdowns in the sub-region.

India and Southeast Asia are set to grow by 7.5% and 5.2%, respectively, next year.

India

In India, GDP growth recovered to 1.6% in Q4 of fiscal year 2020 (FY2020, ended 31 March 2021), narrowing contraction in the whole fiscal year from 8.0% estimated in April to a revised 7.3%.

However a second wave of the pandemic that peaked in May induced many state governments to impose strict containment measures. New COVID-19 cases daily peaked at more than 400,000 in early May, then fell to a little over 40,000 in early July.

Early indicators show economic activity resuming quickly after containment measures eased. The growth projection for FY2021, downgraded from 11.0% in ADO 2021 to 10.0%, reflects large base effects.

The projection for FY2022, by which time much of India’s population is expected to be vaccinated, is upgraded from 7.0% to 7.5% as economic activity normalizes.

South East Asia

ADB cut the 2021 GDP growth forecast for Southeast Asia from 4.4% in ADO 2021 to 4.0% attributing it to the mobility restrictions reimposed to combat a COVID-19 resurgence across the region.

The bank also downgraded GDP forecasts for Indonesia, the Lao People’s Democratic Republic, Malaysia, Thailand, Timor-Leste, and Viet Nam; unchanged for Brunei Darussalam, Cambodia, Myanmar, and the Philippines. S

The GDP growth forecast for 2022 was revised up slightly from 5.1% to 5.2%, reflecting higher vaccination coverage expected by next year.

The GDP growth forecast for Indonesia, currently the epicentre of coronavirus outbreak, has been cut from 4.5% in ADO 2021 to 4.1%, reflecting a second wave of infections. As infections hit record highs, a lockdown was ordered from 3 to 20 July. The lockdown will crimp the ongoing recovery, which started in Q3 2020 and went through Q2 2021, when activity continued to pick up, fiscal policy remained supportive, and export demand improved

ADB revised downwards the growth forecast for Malaysia from 6.0% in April to 5.5%.

In Q1, Malaysia posted a smaller GDP decline of 0.5% year on year with improvement in domestic demand and exports, particularly of electronics and electrical products. However, an extension of lockdown measures imposed in Q2 2021 is set to weaken domestic demand again. Business conditions for manufacturers deteriorated sharply in June under stricter containment measures. Greater downside risks are likely as rising infections show no sign of abating. The GDP forecast for 2022 is kept at 5.7%.

Thailand is set to expand by 2.0%, revised downwards from the previous projection of 3.0%. It is tipped to rebound by 4.9% in 2022.

Vietnam's growth outlook has been slashed to 5.8% from 6.7%, and is projected to grow 7.0% next year.

Philippines, which last week announced the detection of the first local cases of delta variant, remains on track to grow by 4.5%, before expanding by 5.5% next year.

Japan

In Japan, ADB report said that preliminary estimates show GDP declining by 3.9% in Q1 as a third COVID-19 wave in January shrank private consumption. Public consumption surprised on the downside, falling by 4.5%, while 16.5% expansion in imports outpaced 9.2% growth in exports.

The economy stagnated in Q2 as a fourth wave spread across the country in April and May; by 20 June, a state of emergency had been declared in 9 of 47 prefectures. While the number of new cases has started to decline in recent weeks, hobbled mobility and consumer confidence suggest weak economic activity in Q2.

Renewed COVID-19 waves have delayed recovery, but the economy is expected to rebound in the second half of 2021 and throughout 2022 as the current wave of infections recedes and the vaccine rollout accelerates. The manufacturing PMI remains in expansionary territory, and industrial production and machinery orders have bounced back in recent months.

The GDP growth forecast for Japan in 2021 is revised down from 2.9% to 2.6%, mirrored by an upgrade for 2022 from 2.4% to 2.7%.

China

With regard to China, the ADB supplement said the expansion in the People's Republic of China is still projected at 8.1 per cent in 2021, and 5.5 per cent in 2022, as favorable domestic and external trends align with April forecasts.

Vaccination

Vaccine rollouts are progressing in many economies, but the report noted that developing Asia is still far from achieving herd immunity.

As of the end of June, the region had administered 41.6 doses per 100 people, slightly above the global average of 39.2 but well below 97.6 in the United States and 81.8 in the European Union.

Vaccination progress varies widely across the region. The People’s Republic of China (PRC) and several small economies have managed to administer 50 or more doses per 100 people, but almost half of the region’s economies have administered fewer than 15.