The ADB cut its growth forecast for China for the second time in just over two months to 6.8 percent (y/y) in 2015 and 6.7 percent (y/y) in 2016, down from 7 percent and 6.8 percent, respectively. Despite several interest rate cuts conducted by China’s central bank as well as providing fiscal stimulus, the world’s number two economy is bound to grow at its slowest pace in 25 years due to a slowdown in investment and weak exports. Reduced Chinese appetite for energy, metals and other commodities will impact negatively on commodity-focused export markets in Southeast Asia including Indonesia.

Despite expected moderation in developing Asia, the ADB believes that this region will still be the largest contributor to global economic growth. However, the ADB advises that some of developing Asia’s countries will implement macro-prudential regulations (including limiting reliance on foreign currency borrowing) in order to soften the impact of currency pressures and concerns about capital outflows (amid looming higher US interest rates).

The ADB states that "a strengthening US dollar poses a threat to Asian companies with large foreign currency exposure, with data showing that the share of foreign currency debt among firms in Viet Nam, Sri Lanka, and Indonesia exceeds 65%."

The ADB cut its forecast for Indonesia's economic growth from 5.5 percent (y/y) to 4.9 percent (y/y) in 2015 and from 6.0 percent (y/y) to 5.4 percent (y/y) in 2016 on softer growth in China and sluggish growth in industrialized economies.

Further Reading:

Download the Asian Development Outlook Update, September 2015