Asian Development Bank cuts Asia's growth forecast to 5.7% for 2016

Pegs growth in India to fall to 7.4% from 7.6% in 2015, but sees a recovery to 7.8% in 2017

The Asian Development Bank (ADB) slashed its economic growth forecast for developing Asia this year, citing global headwinds and a weaker outlook for China.

Developing Asia will expand 5.7% this year and in 2017, the Manila-based lender said in its latest Asian Development Outlook released on Wednesday.

In its December outlook report, the ADB had forecast 2016 growth for the region at 6.0%.

The region, which groups 45 countries in the Asia Pacific, grew 5.9% last year.

"Risks are tilted to the downside as tightening US monetary policy may heighten financial volatility, further moderation in China could spill over into its neighbors, and producer price deflation may undermine growth in some economies," said ADB chief economist Shang-Jin Wei.

The ADB forecast growth in China, the world's second-largest economy, would slow to 6.5% this year from 6.9% in 2015, its weakest expansion in a quarter of a century. 

Growth is projected to slow further to 6.3% in 2017, ADB said.

The bank's 2016 forecast for China, down from a December estimate of 6.7%, is at the lower end of Beijing's own target of 6.5-7% as the government presses ahead with painful reforms, though Premier Li Keqiang has vowed that would not lead to a hard landing.

Weak prices for oil and other commodities also cast a shadow over the prospects of Asia's commodity-dependent economies, the ADB said.

In the United States, expanding private consumption and investment will be tempered by weak external demand, the ADB said. US Federal Reserve policymakers have cited continuing risks from a shaky global economy in halving the number of potential interest rate hikes this year to two.

Growth in India will slip to 7.4% this year from 7.6% in 2015, but should recover to 7.8% in 2017, the ADB said.

For all of South Asia, ADB forecast growth at 6.9% in 2016 and 7.3% in 2017, versus growth of 7.0% last year.

Economies in Southeast Asia are projected to expand 4.5% this year, from 4.4% in 2015, and by 4.8% in 2017.

For East Asia, ADB sees growth at 5.7% in 2016 and 5.6% in 2017. The region grew 6.0% last year.

Central Asia is estimated to expand by 2.1% this year and 2.8% in 2017, following growth of 2.9% in 2015, the bank said.

Annual inflation in developing Asia is expected to recover to 2.5% this year from 2.2% in 2015 as domestic demand strengthens, ADB said. A rebound in global commodity prices next year should lift inflation to 2.7%, it said.