Developing Asia 2023 GDP growth cut as recovery faces strong headwinds

Nurluqman Suratman

15-Dec-2022

SINGAPORE (ICIS)–Recurrent lockdowns in China, the ongoing Ukraine war and weak external demand given a strong likelihood of a recession hitting major industrialised economies in the west will all weigh on developing Asia’s economic recovery in 2023.

The Asian Development Bank (ADB) has lowered its 2023 GDP growth forecast for the region to 4.6% from its previous projection of 4.9%, while the expansion rate in the current year was cut to 4.2% from 4.3% previously.

The new forecasts are contained in an update released on 14 December to the multilateral institution’s Asia Development Outlook report.

“Recovery in developing Asia is expected to continue but lose some steam,” it said, adding that risks to the outlook remains high.

“Stubbornly high inflation in the US and other advanced economies could prolong the current monetary tightening cycle, and the synchronised nature of the squeeze may bring overly restrictive monetary stances and unnecessary output and employment losses,” the ADB said.

“Similarly, a dangerous situation in the Russian Federation and Ukraine could renew surges in commodity prices, stoking global inflation and inducing further monetary tightening,” it said.

Further growth deceleration in China caused by pandemic or property market issues also threatens to jeopardise regional economic prospects, the Manila-based multilateral institution said.

For China, the world’s second-biggest economy, growth forecasts for 2023 and 2022 were reduced to 4.5% and 3.0%, respectively, marking a sharp slowdown from the 8.1% expansion in 2021.

For east Asia, GDP growth is expected to slow to 2.9% in 2022 compared with an earlier forecast of 3.2%, according to the ADB.

Southeast Asia is expected to fare better with GDP growth this year revised up to 5.5% from 5.1% on the back of recovering domestic demand and tourism.

India in south Asia, meanwhile, is still expected to post a 2022 GDP growth of 7.0%, which should improve to 7.2% in 2023, according to the ADB, citing positive effects from structural reform and from public investment.

ASIA EXPORTS OUTLOOK DETERIORATES
“We see a challenging first half for Asian economies. Amid developed market recessions, we believe spillover effects on export-driven Asian economies are inevitable,” Japan’s Nomura Global Markets Research said in a note.

Nomura expects GDP growth in Asia, excluding Japan, to slow to 3.1% year on year in 2023 from 4.0% in 2022.

Japan is highly industrialized and is the world’s third-biggest economy after the US and China.

“The slowdown in Asia’s export growth has much further to run, in our view, as weakness spreads from China to the US and Europe,” Nomura said.

“Industrial production cuts have begun, in line with weak shipments, but inventories remain elevated across semiconductor, chemicals, basic metals and electrical equipment sectors, which means inventory destocking will be a significant drag on GDP growth until mid-2023,” it said.

The shift in consumption patterns from goods to services and slowdowns in the world’s largest economies are further depressing demand for manufactured goods from developing Asian economies, the ADB said.

Exports of goods from regional trade bellwether China fell by 10.4% year on year between July to October, it said.

For the rest of developing Asia, exports dropped in July by more than 7% from their peak in June and stabilised around that level in August, the bank said.

Based on available data on the new export sub-index within the November manufacturing purchasing manager indices (PMIs), 10 of 11 Asian economies posted readings of below 50, indicating a contraction.

“Readings of 48.3 for the South Korea and 35.1 for Taipei, China are particularly indicative of the worsening external environment, as these economies are typically bellwethers for international trade conditions,” the ADB said.

Focus article by Nurluqman Suratman

Thumbnail image: At the Ningbo-Zhoushan Port in east China’s Zhejiang Province on 13 December 2022. (Source: Xinhua/Shutterstock)

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