The two nations received the largest upgrades for this year among major economies in the Asian Development Bank’s latest outlook released on Tuesday. Meanwhile, India received the steepest downgrade.
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The global trade recovery is helping boost exports in Hong Kong and Malaysia while demonetization and the implementation of the new goods and services tax regime in India have dented consumer spending and business investment.
As a whole, the outlook for developing Asia is robust even as risks remain including sudden changes in U.S. monetary policy and geopolitical or weather-related disasters. The unwinding of stimulus in the U.S. “may drain capital from the region, which would challenge Asia’s financial stability,” according to the report.
Higher bond yields could push up long-term financing costs at the same time that a strengthening U.S. dollar would prompt more capital outflows from the region. Government officials should monitor debt levels and asset prices while strengthening their financial positions, the ADB advised.
In economies like Indonesia, Malaysia, Thailand, and Taiwan, there is room for accomodative policy, the ADB said. In the Philippines and South Korea, the case for stimulus may be less clear because the growth upturn is protracted and price pressures are intensifying.
The region should embark more aggressively on building infrastructure, including through public-private partnerships, the ADB said. More than half of the economies in developing Asia lack dedicated PPP units.
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