The Chinese economy will grow less than seven percent this year, the Asian Development Bank predicted on Tuesday, as it warned of widening fallout from the country’s economic slowdown.
In revisions to its annual Asian Development Outlook, published in March, the ADB lowered its growth forecast for China to 6.8 percent from 7.2 percent. The Chinese government has targeted economic growth of ‘about seven percent’ in 2015.
The US and Japan-led bank also revised down its expectations for economic growth in India to 7.4 percent from 7.8 percent, citing “external demand weakness and a slower-than-expected pace of enacting key reforms”.
As a result of the economic challenges confronting Asia’s largest and third-largest economies, the ADB said economic growth for the entire region this year would be 5.8 percent, compared with its March forecast of 6.3 percent.
In light of the regional slowdown and a strengthening dollar, Shang-Jin Wei, chief economist, warned that some countries needed to guard against capital flight and overseas borrowing. According to the ADB, in the first quarter of the year net capital outflows from developing economies exceeded $125 billion.
Over the past year, China’s foreign exchange reserves have declined by $400 billion.
Last week, the US Federal Reserve pulled back from its first interest rate rise in nine years, citing external concerns such as the global fallout from China’s summer stock market collapse and its ‘one-off’ devaluation of the renminbi last month.
“Developing Asia is expected to continue to be the largest contributing region to global growth, despite the moderation, but there are a number of headwinds, such as currency pressures and worries about capital outflows,” Wei said.
“In order to be resilient to international interest rate fluctuations and other financial shocks, it is important to implement macroprudential regulations that, for some countries, may entail some capital flow management such as limiting reliance on foreign currency borrowing.”
According to the ADB, more than 65 percent of corporate debt in Vietnam, Sri Lanka and Indonesia is denominated in foreign currencies.
“Countries need to be able to absorb external shocks that can be triggered by interest rate developments globally,” added Jurgen Conrad, head of the ADB’s China economics unit. “Governments need to be fully aware of what kind of capital flows they are attracting and what could happen in a stress situation.”
The bank added that Southeast Asia was “bearing the brunt of the slowdown in China” as it lowered its 2015 growth forecast for the region to 4.4 percent from 4.9 percent.
Conrad described China’s slowdown as a ‘controlled deceleration’ consistent with the government’s efforts to rebalance the economy further away from its traditional reliance on investment. “China is making fast progress on rebalancing — faster than we expected six months ago,” he said.
The ADB also cited a series of “one-off factors that could not be predicted” for its downward revision to China’s 2015 growth rate. These included tropical storms, a devastating explosion in the port city of Tianjin and a ‘Victory Day’ public holiday to mark the 70th anniversary of Japan’s second world war surrender.
Economic activity in Beijing, Tianjin and nearby Hebei province, which have a combined population of 110 milliob, was brought to a halt for more than a week to ensure clear skies for a Victory Day military parade.
 

Crude oil prices fell on Tuesday as traders took profit following a three-four percent upward swing in the previous session, with weak economic growth denting the demand outlook amid plentiful supplies.
Oil markets have seesawed since the beginning of the week, torn between data that points towards prices bottoming out after a more than 50 percent fall over the last year and a global glut that bearish analysts say will lead to further losses, Reuters reported.
Traders also focused on the soon-to-expire front-month contract in the West Texas Intermediate (WTI), which serves as the US benchmark. WTI’s October contract was expected to go off the NYMEX board after Tuesday’s settlement.
US West Texas Intermediate (WTI) crude futures were trading at $46.04 per barrel at 0100 EDT, down 64 cents. Globally traded Brent futures were at $48.44 per barrel, down 48 cents.
Analysts said the drop in prices was a result of both a weak economic outlook and a continuing surplus of oil supplies.
“Watch oil for early warnings on global growth and US interest rates,” Barclays said on Tuesday in a report on commodities cycles.
“Falling oil prices are having a big influence on decision-making because they raise concerns about potential deflation, but also because they are viewed as a signal of weaker global demand than is evident in available macroeconomic data,” the bank said.
Other analysts also say oil prices still have space to fall. Several banks including Goldman Sachs and ANZ have revised their price forecasts downward this month, arguing it will take until 2016 or 2017 to reduce an overhang that has built up over the last year by output soaring just as demand slows.
Tuesday’s price dip came after oil rallied the previous session, with US crude surging nearly five percent on signs of declining stockpiles and a fall in drilling activity, which implies lower future oil production.
In another indicator that prices may have bottomed, hedge funds continued to pare short positions in US crude oil last week, a sign they no longer believe in further price falls.
On the demand side, China’s implied oil demand rose 10.2 percent from a year earlier to 10.75 million barrels per day (bpd) in August. August demand was also up 1.2 percent from July’s 10.62 million bpd.
 

Sales of large South Korean companies plunged nearly six percent on-year in the second quarter of this year amid a continued downturn in exports, central bank data showed on Tuesday.
Sales of large companies dropped 5.7 percent in the April-June period from a year earlier, while those of domestically-focused small and medium enterprise (SMEs) gained two percent, according to the quarterly data by the Bank of Korea (BoK). Overall corporate sales dropped 4.3 percent in the three-month period, Yonhap reported.
The drop in large firms’ sales quickened from a 5.5 percent decline in the previous quarter, and those of SMEs mark a turnaround from a 0.6 percent slip three months earlier.
Sales of large manufacturing firms dropped 7.5 percent on-year in the second quarter, the fastest clip since the central bank began compiling such data in 2003.
The figures are based on a survey of 3,065 businesses out of 16,281 local firms, each with total assets of more than 12 billion won ($10.19 million).
The drop in their sales came amid a continued downturn in exports. South Korea’s outbound shipments dropped for eight consecutive months since the beginning of the year, plunging 14.7 percent on-year in August alone, the trade ministry said earlier.
“A drop in raw material prices made the difference for large and smaller firms as the cut in prices of raw materials inevitably affected the price of products and exports,” said Park Seong-bin, head of the central bank’s corporate statistics team.
 

Given the ongoing crisis in global economy and the decreasing value of the nation’s exchange rate against the US dollar, Indonesia’s growth was estimated to reach 4.8 percent at its best this year with five percent was expected for next year, an Indonesian economist said.
The estimation figure was lower from the government’s target at 5.2 and 5.5 percent for this year and next year respectively, Xinhua reported.
“The ultimate contributors to the nation’s growth this year were domestic consumption and investment,” senior economist of Mandiri Institute Andry Asmoro said.
The depreciation of national currency rupiah would not significantly boost the nation’s export like it was highly expected by the government, he said.
Indonesia saw 17 years low of the nation’s exchange rate value against US dollar which now has reached over 14,500 per US dollar.
Indonesia should have been able to take advantage of the depreciation of rupiah to boost its export value, but it failed as the nation’s export was very much depended on commodities, Andry said.
“So the rupiah depreciation would not boost the export which is dominated by commodities whose prices continue to decrease lately. Export improvement would not persist this year,” he said.
Similar thoughts on the nation’s gloomy exports was also expressed by Trade Minister Thomas Lembong last week even though Indonesia booked $433.8 million of surplus in August this year.

European shares fell on Tuesday, led lower by miners as copper prices slid on worries over Chinese demand, while the dollar hit its highest in almost two weeks.