Picture: THINKSTOCK
Picture: THINKSTOCK

MANILA — A slowdown in China and India is reverberating across the region with the Asian Development Bank forecasting an easing of expansion this year, putting pressure on policymakers to take steps to bolster the countries’ economies.

Developing Asia, which excludes Japan, will grow 6% this year and 6.2% next, the lender said in a report on Wednesday. In July, it forecast 6.3% this year and 6.4% in 2014.

Slowing growth in two of Asia’s biggest economies is compounded by concern that the US Federal Reserve’s (Fed’s) impending reduction of its record stimulus will drive investors away from emerging nations and spur volatility in financial markets. The MSCI Asia Pacific index of regional stocks has gained about 7% this year, trailing a 19% gain in the S&P 500 index.

"Asia and the Pacific 2013 growth will come in below earlier projections due to more moderate activity in the region’s two largest economies and (the) effects of quantitative easing nervousness," said Asian Development Bank chief economist Changyong Rhee.

Speculation over the future of the Fed’s quantitative easing has whipsawed global assets since May, when chairman Ben Bernanke first signalled that cuts may start this year. While the sudden outflow of capital exposed vulnerabilities, fears of a 1997-type crisis are unwarranted, given current-account surpluses and ample foreign-exchange reserves in most of the region’s developing economies, the bank said.

China, the world’s second-largest economy, may grow 7.6% this year as the government tries to curb credit bubbles and shadow-banking, the Asian Development Bank said. India may expand 4.7% in the fiscal year to next March as weak infrastructure and lagging investment constrain growth, it said. Southeast Asia will probably grow 4.9% this year and 5.3% next year. Consumer prices in developing Asia are forecast to rise 3.6% this year and 3.7% next as constrained growth and commodity prices hold inflation in check.

Developing Asia faces the twin challenges of maintaining financial stability and sustaining growth, the bank said. The threat of diminished global liquidity from cuts in Fed purchases earlier sparked the biggest emerging-market currency sell-off in five years, with the Indian rupee and Turkish lira hitting record lows.

The Fed said last month it wants more evidence of an economic recovery before paring its $85bn -a-month bond-buying programme, surprising analysts who predicted a $5bn cut to purchases of Treasuries. The US government this week had its first shutdown in 17 years after the US Congress’s inability to pass a budget caused a partial closure of services.

The largest developing nations have the worst market opportunities for the first time as optimism for stronger growth shifts to the US and Europe, according to a Bloomberg Global Poll last month. India fared the poorest, followed by Brazil, Russia and China, a worldwide poll of investors, analysts and traders who are Bloomberg subscribers showed.

Still, "compared with 1997, most regional economies now have robust current account surpluses and much higher foreign reserves relative to their modest amounts of short-term external debt", the Asian Development Bank said. "In addition, countries in the region have since 1997 significantly strengthened their macroeconomic management, financial regulation and supervision, and corporate governance."

Developed economies are turning into global growth engines as some emerging-market counterparts decelerate, the International Monetary Fund said in a report for Group of 20 leaders this month.

China’s economy slowed last quarter as growth in manufacturing and transportation weakened, and rises in business-investment and real estate revenue eased, a survey from New York-based China Beige Book International showed last month.

In India, central bank governor Raghuram Rajan surprised analysts by raising the benchmark rate in his first policy review on September 20, seeking to rein in inflation that has hurt the poor and dimmed economic prospects.

Bloomberg