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HIGHLIGHTS Unanticipated external demand has improved growth prospects for developing Asia, prompting this Supplement to upgrade the growth forecast for the region from 5.7% to 5.9% this year and from 5.7% to 5.8% in 2018. Excluding Asia’s high-income newly industrialized economies, growth should hit 6.4% this year and 6.3% in 2018. The resulting boost to net exports all but suspends growth moderation in the People’s Republic of China, which is now expected to expand by 6.7% in 2017 and 6.4% in 2018, while lifting the pace of growth this year in the Republic of Korea and Taipei,China. This Supplement raises East Asia’s growth projections from 5.8% to 6.0% for 2017 and from 5.6% to 5.7% for 2018. India is expected to achieve April forecasts of 7.4% growth in 2017 and 7.6% in 2018, primarily from strong consumption. Growth projections for South Asia are likewise maintained as prospects remain robust. High first quarter growth in Malaysia, the Philippines, and Singapore keeps Southeast Asia on track to meet forecasts of 4.8% growth this year and 5.0% in 2018. Central Asia is recovering more strongly than expected, prompting upgraded forecasts in this Supplement. The Pacific will likely realize earlier projections. Ample supply has held world oil prices low despite rising demand, while favorable weather has kept food prices stable. This Supplement forecasts inflation in 2017 at 2.6%, revised down by 0.4 percentage points, and at 3.0% next year. Growth outlook With export demand stronger than expected in the first quarter of 2017, the region’s gross domestic product (GDP) is forecast to expand somewhat faster than forecast in April in Asian Development Outlook 2017 (ADO 2017). Developing Asia is now expected to grow by 5.9% in 2017, or 0.2 percentage points higher than the rate previously envisaged. The smaller upgrade in the 2018 growth forecast—5.7% in ADO 2017 to 5.8%—reflects a cautious view on the pace of the turnaround in external demand. Excluding the newly industrialized economies of the Republic of Korea (ROK), Singapore, Taipei,China, and Hong Kong, China, growth projections for the region are revised up to 6.4% for 2017 and to 6.3% for 2018. Projections are upgraded for Central and East Asia but unchanged for the other three subregions (Table 1). The combined growth forecast for the major industrial economies—the United States, the euro area, and Japan—is retained from ADO 2017. Although the growth projection for the US this year is now 0.2 percentage points lower in the wake of disappointing first quarter results, upward revisions for the euro area and Japan, supported by robust domestic demand, compensate to maintain the collective forecast (Box 1). CauTIouS opTImISm for aSIa’S ouTLook The Asian Development Bank Regional Economic Outlook Task Force led the preparation of this revised outlook for this Asian Development Outlook Supplement. The task force is chaired by the Economic Research and Regional Cooperation Department and includes representatives of the Central and West Asia Department, East Asia Department, Pacific Department, South Asia Department, and Southeast Asia Department. AsiAn development oUtlooK sUpplement JuLY 2017 2 ASiAn DEvElOPmEnT OuTlOOk SuPPlEmEnT Table 1 Gross domestic product growth (%) 2016 2017 2018 ADO 2017 ADOS ADO 2017 ADOS Developing asia 5.8 5.7 5.9 5.7 5.8 Developing asia excluding the NIEs 6.3 6.3 6.4 6.2 6.3 Central asia 2.1 3.1 3.2 3.5 3.8 kazakhstan 1.0 2.4 2.6 2.2 2.9 East asia 6.0 5.8 6.0 5.6 5.7 China, People's Rep. of 6.7 6.5 6.7 6.2 6.4 Hong kong, China 1.9 2.0 2.0 2.1 2.1 korea, Rep. of 2.8 2.5 2.7 2.7 2.7 Taipei,China 1.5 1.8 2.0 2.2 2.2 South asia 6.7 7.0 7.0 7.2 7.2 india 7.1 7.4 7.4 7.6 7.6 Southeast asia 4.7 4.8 4.8 5.0 5.0 indonesia 5.0 5.1 5.1 5.3 5.3 malaysia 4.2 4.4 4.7 4.6 4.6 Philippines 6.9 6.4 6.5 6.6 6.7 Singapore 2.0 2.2 2.4 2.3 2.5 Thailand 3.2 3.5 3.5 3.6 3.6 viet nam 6.2 6.5 6.5 6.7 6.7 The pacific 2.6 2.9 2.9 3.3 3.3 ADO = Asian Development Outlook, ADOS = ADO Supplement, niEs = newly industrialized economies (Republic of korea, Singapore, Taipei,China, and Hong kong, China). Note: developing Asia refers to the 45 members of the Asian Development Bank listed below. Central Asia comprises Armenia, Azerbaijan, Georgia, kazakhstan, the kyrgyz Republic, Tajikistan, Turkmenistan, and uzbekistan. east Asia comprises the People’s Republic of China; the Republic of korea; mongolia; Taipei,China; and Hong kong, China. south Asia comprises Afghanistan, Bangladesh, Bhutan, india, maldives, nepal, Pakistan, and Sri lanka. southeast Asia comprises Brunei Darussalam, Cambodia, indonesia, the lao People’s Democratic Republic, malaysia, myanmar, the Philippines, Singapore, Thailand, and viet nam. the pacific comprises the Cook islands, Fiji, kiribati, the marshall islands, the Federated States of micronesia, nauru, Palau, Papua new Guinea, Samoa, Solomon islands, Timor-leste, Tonga, Tuvalu, and vanuatu. Sources: Asian Development Bank. 2017. Asian Development Outlook 2017; ADB estimates. Hong Kong, China grew by 4.3% in the first quarter of 2017 on continued momentum from the previous year. Domestic demand remained strong during the quarter, while external trade in goods recorded its fastest growth in 4 years. Favorable hiring and income conditions buoyed domestic sentiment, as did higher asset prices, pushing private consumption growth to 3.7%. Capital spending expanded by 6.4%, helped by robust construction even as machinery and equipment acquisition remained subdued. Strengthening global conditions and expanding regional trade and manufacturing spurred exports, while robust domestic demand propelled faster growth in imports. Whether this strength in first quarter growth will be sustained in the next few quarters remains to be seen in view of uncertainty regarding Brexit, the normalization of East Asia East Asia’s growth forecasts are revised up from 5.8% to 6.0% for 2017 and from 5.6% to 5.7% for 2018 on upward revisions for the People’s Republic of China (PRC), the ROK, and Taipei,China. Economic growth in the PRC has so far turned out to be stronger than expected in 2017, with official figures showing GDP growth in the first half at 6.9% (year on year, here and below). Consumption continued to hold up well, supported by solid wage growth and more generous social spending. Investment growth is lower than last year, despite government support for infrastructure and a still buoyant property market, as manufacturing investment remains constrained by excess capacity and high debt. However, exports have responded to a pick up in demand from developed and developing economies alike, driven in part by the mild rebound in some commodity prices from their 2016 lows, resulting in a positive contribution to growth from net exports in the first half of the year. Growth is still expected to decelerate in the second half of 2017 and in 2018, as the government moves to reduce financial risks. Government regulations have been tightened, particularly on nonbank financial institutions and monetary conditions, more generally, are expected to become tighter over the forecast period. Moreover, softer commodity prices may weigh on commodity-exporting economies, weakening their demand for PRC’s products. Nevertheless, given the stronger-than-expected growth outturn in the first half of 2017, the PRC growth forecast is revised up to 6.7% for 2017 and 6.4% for 2018. In the ROK, the economy expanded by 2.9% in the first quarter of 2017, outpacing the 2.4% posted in the fourth quarter of 2016. A sharp upswing in machinery and equipment outlays and persistently high construction growth helped boost GDP growth overall, though consumption growth was modest. By sector, manufacturing posted growth at 2.1%, up from 1.8% in the previous quarter. Political uncertainty receded after the new president won a clear victory, and the new administration has hinted at some fiscal expansion. Supported by an improving global outlook and strong export performance, the growth forecast is revised up to 2.7% from 2.5% for 2017, while the 2018 forecast is maintained at 2.7%. Taipei,China grew by 2.6% in the first quarter of 2017, underpinned by steady domestic consumption growth and a pickup in exports on higher external demand for electronic components. Although first quarter growth was slower than in the previous quarter, the latest quarterly indicators point to a brisk start for the year. Unemployment neared a 2-year low in April, and strong real wage growth in the first quarter paved the way for solid private consumption growth expected in the second quarter. Exports of semiconductors were also stronger than expected, and investment in machinery and equipment was higher. The GDP growth forecast for 2017 is thus revised up to 2.0% from 1.8% in ADO 2017. The forecast for 2018 is unchanged at 2.2%. ASiAn DEvElOPmEnT OuTlOOk SuPPlEmEnT 3 Box 1 outlook for the major industrial economies The growth outlook for the major industrial economies— the US, the euro area, and Japan—is unchanged from ADO 2017 projections. Disappointing results in the US in the first quarter weigh down the outlook for 2017 but are offset by unexpectedly strong growth in the euro area and Japan, leaving the collective outlook for these economies steady at 1.9% in both 2017 and 2018. After strong expansion at 3.5% in the third quarter of 2016 and a 2.1% gain in the fourth quarter, US economic