China Effect Seen as ADB Cuts Asia GDP Forecasts Again

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China’s declining appetite for energy, metals and other commodities will hurt commodity-focused export economies, including Mongolia, Indonesia, Azerbaijan, and Kazakhstan, the Asian Development Bank said.

For the second time in just over two months, the ADB cut China’s economic growth forecasts -- to 6.8 percent in 2015 and 6.7 percent in 2016 -- it said in its Asian Development Outlook 2015 Update report released Tuesday, Sept. 22. In July, it projected a 7 percent expansion for this year and 6.8 percent for next.

A potential 1 percentage point slowdown in Chinese GDP growth would probably mean a 0.7 percentage point drop in collective GDP growth for a group of five commodity-exporting nations, the ADB said.

China is set to grow at its slowest pace in a quarter century this year even after five central bank interest-rate cuts and fiscal stimulus. Its slowdown is rippling across the region with the ADB cutting growth forecasts for developing Asian economies for this year and next.

Policy makers in the region may be forced to follow the U.S. in raising interest rates to contain destabilizing capital flow reversals, even as that would constrain action to boost domestic demand and revive growth, the ADB said.

The strengthening U.S. dollar poses a threat to Asian companies with large foreign currency exposure, with the share of foreign-currency debt among firms in Vietnam, Sri Lanka, and Indonesia exceeding 65 percent, the lender said.

(Correcting third paragraph of story published Sept. 22 to reflect Asian Development Bank changing its own projections to make them collective for a group of commodity-exporting nations, rather than specific by country.)

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