Weak China growth to spill into rest of Asia, says Asian Development Bank

Weaker growth in China this year is expected to cause a slowdown in the rest of Asia, the Asian Development Bank said on Tuesday as it became the latest major body to lower  its forecasts for the world’s No 2  economy.

 It also warned central banks to prepare for an expected Federal Reserve interest rate rise, with many nations already seeing huge capital outflows as dealers look for safer US investments.

The report comes as markets have been hit by extreme volatility driven by fears over the Chinese economy – and its leaders’ management of it – after last month’s surprise devaluation of the yuan.  

“The combination of a moderating prospect in China and India, together with delayed recovery of advanced countries, weighed on our forecast for the region as a whole,” said Wei Shang-Jin, the ADB’s chief economist, who presented the report in Hong Kong.

In an update to its  outlook released in March, the bank said growth in the region would hit 5.8 per cent this year and 6 per cent next year.  March’s forecast was for 6.3 per cent for both years.  

 Wei said  the overall outlook for the region was “still positive” but had been  affected by capital flow reversals and weakened commodity prices,  partly related to China’s slowdown.