ADB says further monetary easing will push GDP to 6.8% in 2013 despite CB’S higher targets

Further monetary easing will push Sri Lanka’s economic growth to 6.8 percent in 2013 and 7.2 percent in 2014, according to the latest supplement to the Asian Development Outlook (ADO) released by the Asian Development Bank (ADB).

The ADB’s outlook on the Sri Lankan economy came in the wake of Sri Lanka’s Central Bank chief hinting another round of monetary easing by September or October this year, to boost the slow moving economy, subject to inflation expectations.

The development lender’s economic outlook was largely based on the expectation that the island nation will improve her electricity generation in order to power the domestic industries.

Even then, the ADO’s growth forecasts still remain conservative to that of the projections by the Central Bank, where the latter expects the economy to grow by 7.5 percent in 2013 and 8.0 percent in 2014.

However, Sri Lanka’s economic growth in comparison to her South Asian counterparts still remains satisfactory. According to the ADB, South Asia’s largest economy, the Indian economy, is expected to moderate to 5.8 percent in 2013, against the earlier projection of 6.0 percent. “India’s growth remains constrained by supply side bottlenecks, as reflected in the continued slowdown in fixed capital formation, weakness in the industrial sector and sluggish progress in pushing through badly needed structural reforms,” the ADB stated.

However, India’s growth is expected to gain momentum in 2014 and beyond due to scope for monetary easing, preelection spending and pick-up in US growth, which supports the Indian tech companies.

Economic growth in other South Asian countries - Afghanistan, Bangladesh, Nepal and Pakistan - are expected to be softer than in 2012 as some of these countries face political transitions, which could hamper the economic policymaking. The ADB therefore expects the South Asian sub-region to grow by not more than 5.6 percent in 2013 picking up to 6.2 percent in 2014.

China’s dampened growth expectations is expected to have a knock-on effect on other East Asian economies. The ADO cut China’s 2013 growth outlook to 7.5 percent from 7.7 percent while East Asia’s economic growth was revised down to 6.7 percent from 7.1 percent.

Meanwhile, the ADB’s inflation outlook for the developing Asia is expected to ease to 3.5 percent from the earlier projected 4.0 percent in 2013, due to softer oil prices and relatively stable food prices.

( DK)