DELHI – The World Bank has forecast a greater GDP growth rate in South Asia for the next two years, reflecting an upturn in recent market trends for countries in the region. East Asia, meanwhile, is predicted to experience a slump in GDP growth.
The results of the World Bank’s South Asia Economic Focus, released on Monday, show that India will lead the way in South Asia’s GDP growth rate, accounting for approximately eighty percent of the region’s output. The growth rates of East Asian countries, however, are predicted to slow, reflecting more conservative monetary policies that the region, and China in particular, is expected to implement.
The report states that South Asia will improve upon its current 5.4 percent growth rate, reaching six percent in 2015 and 6.4 percent in 2016. East Asia’s growth, on the other hand, is predicted to decrease, with its 7.1 percent rate dropping to 6.9 percent for both the current and next fiscal year, and decline further to 6.7 percent by 2016.
A number of commentators have been quick to attribute the slump in East Asia’s predicted economic growth to the recent pro-democracy protests in Hong Kong, and their resultant effect on foreign investment in mainland China. Capital Economics, for example, notes that the economic repercussions of the protests won’t be limited to Hong Kong, but will also spill over to the rest of China. In a note to customers, they said: “It is important not to underestimate the potential costs to mainland China if foreign investors become reluctant to use Hong Kong as a gateway into the country.”
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However, the predictions made by the World Bank seem to be based on market trends that far outdate the unrest that Hong Kong has recently been experiencing. Although the protests are indeed important and will undoubtedly have some bearing on investor confidence in China, the rise of certain South Asia countries as sourcing and manufacturing destinations has long been earmarked as a counterbalance to East Asian growth. This is especially true of the South’s biggest superpower, India.
India’s cheaper labor costs, combined with the government raising foreign direct investment (FDI) caps and expanding its special economic zones (SEZs), have served to drastically change the country’s economic outlook. This is echoed in the World Bank’s report, which states that the South Asia region “has an opportunity to become the manufacturing hub of the world”, provided that the region maintains structural reform.
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With India Prime Minister Narendra Modi announcing his intention to do exactly that during his recent visit to the U.S., it may be that the Asia-Pacific is indeed on the cusp of an economic power shift.
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