The Asian Development Bank (ADB) has upgraded its growth forecast for South Asia this year, as its largest economy, India’s prospect seen improving.
In its 2014 outlook supplement, the ADB said on Friday that the region is now expected to grow 5.4% this year, compared to its forecast in April of 5%. Growth in 2015 in South Asia is expected to be around 6.1%.
South Asia comprises Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka.
Expectations of economic reform by Prime Minister Narendra Modi’s new government mean that the Manila-based lender has raised its 2015 growth forecast for India to 6.3% from 6%, though 2014 is still expected to see 5.5% expansion.
The ADB kept its growth forecast for China at 7.5% in 2014 and 7.4% in 2015.
Improving prospects in India have buoyed South Asia’s growth outlook somewhat. The new government—the first to hold a single-party majority in the lower house since 1984—outlined a 10-point plan to revive the Indian economy prioritizing infrastructure and investment reforms, faster resolution of inter-ministerial issues, efficient policy execution, and policy stability. While detail on the structural reforms remains limited, it is expected that greater political certainty will support a pickup in infrastructure investment. ADB maintains its growth forecast at 5.5% for fiscal year (FY) 2014 but upgrades its FY2015 forecast by 0.3 percentage points to 6.3% as anticipated reform bears fruit.
Pakistan’s growth for the fiscal year that ended in June surprised on the high side—4.1% compared to the Asian Development Outlook (ADO) 2014 forecast of 3.4%—and Nepal’s growth was seeing a strong finish to its fiscal year. Overall, South Asia’s 2014 forecast is nudged up 0.1 percentage points to 5.4%. The improved outlook in India pushes up the subregional forecast for 2015 from 5.8% to 6.1%.
For developing Asia as a whole, the 2014 and 2015 expectations for GDP growth were maintained at 6.2% and 6.4% respectively. Inflation in the region in 2014 is now forecast to be a touch lower at 3.5%, compared to the 3.6% seen in April.
“Developing Asia as a region continues to perform well,” said ADB Deputy Chief Economist Juzhong Zhuang. “The pace of the growth moderation in the People’s Republic of China (PRC) is in line with our expectations while the stage is set for India to pursue reform that could unlock its growth potential.”
