Developing Asia’s Recovery Continues Amid Global Headwinds

Developing Asia’s economic recovery is likely to continue this year and in 2023 after a strong showing in 2021. The region is forecast to grow 5.2% this year and 5.3% in 2023, according to the Asian Development Outlook (ADO) 2022, the Asian Development Bank’s (ADB) flagship economic publication. Risks to developing Asia’s growth outlook include escalating global geopolitical tensions, tightening financial conditions, and the continued threat from COVID-19.

Transcript

Albert Park

Chief Economist

What's the outlook for developing Asia's economies this year and in 2023?

We expect the region's economy to expand by 5.2% this year and 5.3% next year. Developing Asia rebounded strongly in 2021 and is showing continued signs of recovery. Domestic demand and economic activity are picking up, as more economies are loosening their pandemic restrictions. And exports from the region remain strong.

That said, individual economies will recover at different speeds, and for many of them output this year will remain below the pre-pandemic trend. East Asia will grow at a slower pace, after a sharp rebound in 2021. The recovery will continue in the Caucasus and Central Asia, as well as in South Asia, and will gather pace in Southeast Asia and the Pacific.

What are the risks to the economic outlook?

There are three big risks to the outlook: escalating global geopolitical tensions, tightening financial conditions, and the continued threat from COVID-19.

The Russian invasion of Ukraine has led to a spike in uncertainty, disruptions to global trade, and soaring prices for commodities like energy and food. Economies in developing Asia, and elsewhere, will need to monitor the fallout from the war and consider policies that might soften its impact.

At the same time, financial conditions are tightening globally and in the region. The US Federal Reserve has started raising its policy rate, which is typically associated with increased financial stability risks. Various central banks in our region are also expected to start tightening as inflationary pressures rise, which will slow the economic recovery.

Finally, we still have to grapple with COVID-19. New and more deadly variants can still emerge and wreak havoc. The most important thing we can do to protect people and recover economically is to make sure that vaccination coverage in the region continues to increase.

What's the outlook for inflation in Asia and the Pacific?

We expect that inflation in developing Asia will rise to 3.7% this year, up from 2.5% last year, with inflation rates increasing in all subregions except the Caucasus and Central Asia.

For 2023, we forecast that the regional inflation rate will moderate to 3.1%. The inflation outlook is also affected by Russia's invasion of Ukraine. Rising oil and gas prices will especially impact poorer economies that rely heavily on imported fuels. This provides additional reasons for central banks in the region to keep a close eye on price pressures.

 

 
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