Asian Economy: ADB forecasts and current risks for the region

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Economic growth in Asia and the Pacific is expected to remain solid, although risks to the outlook are rising, according to a report by the Asian Development Bank (ADB), reports.

The region’s developing economies are forecast to grow 4.7% this year, a slight downward revision from a previous projection of 4.8%, according to Asian Development Outlook (ADO) September 2023, released today. The growth forecast for next year is maintained at 4.8%.

Growth in the region was upbeat in the first half of this year, driven by healthy domestic demand and reopening in the People’s Republic of China (PRC), even as a weaker global outlook reduced export demand. Rebounding tourism, resilient service sectors, healthy money transfers into the region, and improving financial conditions are all helping support economic activity, and inflation is receding in most economies after peaking last year.

However, weakness in the PRC’s property sector is weighing on regional prospects. High global interest rates have increased the risk of financial instability. Sporadic supply disruptions from the continuing Russian invasion of Ukraine, export restrictions, and the increased risk of droughts and floods caused by El Niño could once again trigger rising food prices and challenge food security.

“Developing Asia continues growing robustly, and inflation pressures are receding. Some central banks in the region have started to lower interest rates, which will help boost growth. Still, governments need to be vigilant against the many risks that the region faces. Property market weakness in the PRC remains a concern. Extreme weather events due to climate change and the effects of El Niño remind us that economies must work together to build resilience and protect the most vulnerable” ADB Chief Economist Albert Park

Inflation in developing Asia and the Pacific is expected to be 3.6% this year, down from an earlier projection of 4.2%. This is largely due to low inflation in the PRC, along with steadying food and energy prices. The inflation forecast for next year is 3.5%.

Among developing Asia’s subregions, Southeast Asia’s growth outlook is cut to 4.6% this year from an earlier projection of 4.7%, due to weaker export demand. The forecast for South Asia is also lowered by 0.1 percentage points, to 5.4%—though it remains the fastest-growing subregion, thanks to strong investment and consumption. The outlook for East Asia is cut to 4.4% from 4.6%, with the PRC now expected to grow by 4.9% this year, from 5.0% in April. Growth forecasts have been raised for the Caucasus and Central Asia and for the Pacific.

Economic activity in Central Asia and Caucasus remained strong in the first half of 2023 driven by domestic demand, though growth slowed in every country except Kazakhstan and Tajikistan, compared to the first half of 2022. Growth is projected to fall from 5.1% in 2022 to 4.6% in 2023 and then inch up to 4.7% in 2024. Compared with April projections, the forecast has been upgraded by 0.2% for 2023 and 0.1% for 2024. The upward revision accommodates domestic demand that beat expectations in Armenia, Georgia, Kazakhstan, Tajikistan and Uzbekistan. It reflects robust tourism and migrant flows from the Russian Federation, which continue to fuel consumption in Armenia and Georgia; fiscal stimulus in Kazakhstan and Uzbekistan; monetary policy easing in Armenia, Georgia, and Tajikistan, and higher inward money transfers in Georgia and Tajikistan. Inflation accelerated in Kazakhstan but slowed in the other seven countries as import prices stabilized, allowing some easing of monetary policy. Sub-regional inflation is expected to decelerate from 12.9% in 2022 to 10.6% in 2023 and further to 8.0% in 2024. The outlook remains dependent on external factors, including growth in key trade partners, oil prices, the pace of remittances and private transfers, and inflows of tourists and migrants from the Russian Federation.

Growth forecast for Kazakhstan was revised upward to 4.1% in 2023 and 4.3% in 2024 from 3.7% and 4.1% projected in April, reflecting higher consumption and investment driven by higher government spending on infrastructure modernization and social programs. Government-approved petroleum and utility price increases prompt higher inflation projections for both years, but still on easing trend. The inflation is projected at 12.7% this year and 7.6% next year, an upward revision from 11.8% and 6.4% forecasted in April, respectively. Escalating trade and investment sanctions on Russia, Kazakhstan’s important trade partner, pose downside risks to the outlook. 

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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