The Asian Development Bank (ADB) on Wednesday cuts its growth forecast for developing Asia, reflecting “worsened” prospects because of the war in Ukraine, faster monetary policy tightening in advanced economies and China’s Covid-19 lockdowns. The ADB sees a weaker outlook in China, India and the surrounding region in Asia in its Asian Development Outlook supplement.
“Developing Asia continues to recover, but risks loom large,” said ADB Chief Economist Albert Park. “A significant downturn in the world economy would severely undermine demand for the region’s exports. Stronger-than-expected monetary tightening in advanced economies could lead to financial instability. And growth in the PRC faces challenges from recurrent lockdowns and a weak property sector. Governments in developing Asia need to remain vigilant against these risks and take the necessary steps to contain inflation without derailing growth.”
The bank lowered developing Asia, a bloc that includes China and India, economy to grow 4.3% this year, compared with the bank’s projection in April of a 5.2% expansion, according to an update of the Asian Development Outlook (ADO) 2022, released today.
The growth forecast for next year has been lowered to 4.9% from 5.3%, while the region’s inflation forecast has been raised. Excluding the PRC, the rest of developing Asia is projected to grow by 5.3% in both 2022 and 2023.
- Growth forecasts are revised down from the projections made in April, to 4.3% for this year and to 4.9% for next year.
- Inflation in developing Asia, while remaining lower than elsewhere in the world, is increasing amid higher energy and food prices. The regional inflation forecast is raised to 4.5% for this year and 4.0% for next year.
- Several downside risks loom large. A sharp deceleration in global growth, stronger-than-expected monetary policy tightening in advanced economies, the Russian invasion of Ukraine escalating, a deeper-than-expected deceleration in the People’s Republic of China (PRC), and negative pandemic developments could all dent developing Asia’s growth.
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Economic growth in the People’s Republic of China (PRC) moderated to 2.5% in the first half (H1) of 2022 from 12.7% in H1 2021 (Figure 3.2.4). GDP growth slowed sharply from 4.8% in Q1 2022 to 0.4% in Q2 as COVID-19 lockdowns disrupted economic activity.
The PRC’s growth outlook for this year was downgraded to 3.3% from a 5.0% projection in April. This will be the first year in more than 3 decades that the rest of developing Asia will grow faster than the PRC.
Several impediments are keeping economic growth from recovering swiftly.
First, household demand got hit again and has not fully recovered. Meanwhile, household savings, especially those of migrant workers and micro businesses, suffered under income losses.
Second, the housing market will likely weigh on economic recovery in H2 2022 as it has not yet stabilized and the government has been reluctant to substantially loosen housing market restrictions, particularly those on developer financing.
Third, local governments lack the funds to sustain more prolonged infrastructure stimulus, which has forced the central government to allow them to accumulate additional debt.
Fourth, monetary policy has only limited potential to support growth because monetary policy tightening in advanced economies inhibits scope for the People’s Bank of China to lower policy rates.
Finally, external trade is expected to soften in H2 2022 and moderate further in 2023 as external demand declines in line with slowing growth in advanced economies
The forecast for India was lowered to 7.0% from 7.5%, due to higher-than-expected inflation and monetary tightening.
India’s economy grew 13.5% year on year in the first quarter of fiscal year 2022 (FY2022, ending 31 March 2023) reflecting strong growth in services. However, GDP growth is revised down from ADO 2022’s forecasts to 7.0% for FY2022 and 7.2% for FY2023 as price pressures are expected to adversely impact domestic consumption, and sluggish global demand and elevated oil prices will likely be a drag on net exports
Growth in the Southeast Asia subregion for 2022 is revised up to 5.1% from the earlier 4.9% projection due to stronger growth forecasts for Indonesia, Myanmar, and the Philippines. Consumer spending in these economies accelerated after their borders reopened. Growth in Indonesia is benefiting from windfall export gains. Investment in the Philippines is also rising. The projections for growth this year for the Lao PDR, Singapore, Thailand, and Timor-Leste are revised down because of weaker external demand from major economies, which will dampen growth in these four economies. The forecasts for Brunei Darussalam, Cambodia, Malaysia, and Viet Nam are unchanged.
The growth forecast for the Southeast Asia subregion for 2023 is revised down to 5.0% from the earlier 5.2%projection because of weaker global growth, supply chain disruptions, continuing lockdowns in the People’s Republic of China, and higher inflation. Growth forecasts for seven of the subregion’s 11 economies are revised down and the rest unchanged.
Tightening Monetary Policy
More aggressive monetary tightening by the US Federal Reserve and the European Central Bank is denting global demand and rattling financial markets. Meanwhile, sporadic COVID-19 outbreaks and new lockdowns have slowed growth in the PRC, the region’s largest economy.
Financial conditions have deteriorated in developing Asia on Fed tightening and Russia’s invasion of Ukraine. The strengthening US dollar has been reflected in currency depreciations and portfolio outflows in the region. Equity markets weakened further after the Fed raised its benchmark policy rate in March and May, and risk premiums for many economies in the region have widened this year.
The Asian Development Bank (ADB) is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. It assists its members and partners by providing loans, technical assistance, grants, and equity investments to promote social and economic development.
From The TradersCommunity News Desk