Hong Kong, September 22

Weaker growth in China this year is expected to cause a slowdown in the rest of Asia, the Asian Development Bank (ADB) said today as it became the latest major body to revise down its forecasts for the world’s number two economy.

It also warned central banks to prepare for an expected Federal Reserve interest rate rise, with many nations already seeing huge capital outflows as dealers look for safer US investments.

The report comes as markets have been hit by extreme volatility driven by fears over the Chinese economy — and its leaders’ management of it — after last month’s surprise devaluation of its yuan currency.

“The combination of a moderating prospect in China and India, together with delayed recovery of advanced countries, weighed on our forecast for the region as a whole,” said ADB Chief Economist Shang-Jin Wei, who presented the report in Hong Kong.

In an update to its Asian Development Outlook released in March, the bank said growth in the region would hit 5.8 per cent this year and six per cent in 2016. March’s forecast was for 6.3 per cent for both years.

Inflation in the developing Asia region was forecast to ease further, partly due to lower global commodity prices.

Wei said that the overall outlook for the region was ‘still positive’ but had been impacted by capital flow reversals and weakened commodity prices for exporters, partly related to the China slowdown.

“Developing Asia is expected to continue to be the largest contributing region to global growth despite the moderation,” he added.