The Asian Development Bank has downgraded its growth forecast for the region, citing the war in Ukraine, rising interest rates to combat decades of high inflation and China’s slowing economy.
A lender based in Manila, Philippines, has cut its growth estimate for developing Asia’s economies to 4.3% from its previous forecast of 5.2%. Growth for 2023 was cut to 4.9% from 5.3% in the revised regional outlook released on Wednesday.
ADB economists said other developing Asian economies will grow faster than China for the first time in 30 years.
The latest forecasts predict that the world’s second largest economy will expand at an annual pace of 3.3% this year. This is down from his 8.1% in 2021 and well below ADB’s April forecast of his 5.0% expansion. The setback represents a prolonged slowdown in China’s growth, combined with disruptions from the COVID-19 outbreak, lockdowns and other measures to combat the virus.
India and the Maldives were projected to grow the fastest at 7% and 8.2% respectively. In Sri Lanka, where the financial crisis has left the country unable to pay its debts and unable to afford imports, the economy is projected to contract 8.8% from its 3.3% growth pace last year.
ADB’s projections for inflation in Asia are 4.5% in 2022 and 4.0% next year, less aggressive than those in the United States and some other countries. However, Sri Lanka’s inflation is expected to reach nearly 45% this year, while prices are expected to rise by nearly 16% in Myanmar and nearly 15% in Mongolia, according to the report.
Inflation has also risen sharply in Laos and Pakistan. Her two countries are facing economic crises due to rising debt burdens and slowing growth.
Noting that high grain and oil and gas prices were the main drivers of the price rise, the report said, “Although global food and energy prices have fallen recently, these declines have contributed to falling domestic prices. It will take time to connect.”
Most economies in Southeast Asia are expected to maintain their strong pace of growth as tourism resumes and demand recovers. Domestic private consumption, investment and remittances from overseas workers are also driving stronger business activity, the report said.
However, the demand that drives growth remains relatively weak. Exports across the region increased by 15% year-on-year in the first half of this year, mostly reflecting higher prices, while the real volume of exports increased by only 5.2%. Exports fell he in July and he in August.
Meanwhile, as people adjust to remote work and schooling, the pandemic boom in demand for electronics products and components has subsided, and export growth has also slowed.
A positive sign of easing demand is that supply delays and shortages have eased and shipping costs have fallen significantly. By late August, shipping a container from East Asia to the US cost him $7,000, down from $16,000 in January.
The report says coronavirus vaccination coverage across the region was 73% fully vaccinated as of the end of August, similar to that of the European Union, and no country with almost everyone vaccinated He points out that it is only a handful.
Further outbreaks remain a risk for the region, it said. So will Ukraine’s development as the government implements sanctions against Moscow, including the EU’s decision to ban seaborne imports of Russian oil by the end of the year.