This update revises down the forecasts for developing Asia made in April, to 4.3% for 2022 and to 4.9% for 2023. The revised outlook is shaped by a slowing global economy, the fallout from Russia’s protracted invasion of Ukraine, more aggressive monetary tightening in advanced economies, and lockdowns resulting from the People's Republic of China’s zero-COVID policy. East Asia and South Asia account for most of the downgrade.
Macroeconomic Research Division Director Abdul Abiad discusses developing Asia's latest economic outlook and the risks involved, including increased monetary tightening, slowing global growth, and the lingering effects of the COVID-19 pandemic.
The regional inflation forecast is raised to 4.5% from 3.7% for 2022 and to 4.0% from 3.1% for 2023, due to higher energy and food prices. Despite the upward revisions, inflationary pressures in developing Asia are expected to remain less severe than elsewhere in the world. But headline inflation is expected to accelerate in all subregions, to varying degrees. Although inflation is mainly cost-push driven, monetary authorities in the region should continue to remain vigilant to broadening price pressures and be ready to act when needed.
Inflation in developing Asia is on the rise. The average inflation rate in the region increased to 5.3% in July from 3.0% in January. Even so, price pressures in developing Asia remain more moderate than in advanced economies, including the US and the euro area, and most emerging economies. But the continued rise in inflation this year has pushed the regional rate 2.5 percentage points above the 2015–2019 prepandemic average, which suggests an increasing deviation from more normal price dynamics. The regional aggregate masks significant differences across subregions. In July, the Caucasus and Central Asia had the highest inflation rate, at 13.5%, followed by South Asia at 10.0%. Inflation in East Asia was just 3.0%.
Rising global food and energy prices contributed to inflation increasing throughout the region. While global food and energy prices have been decreasing recently, it will take time for these declines to translate into lower domestic prices.
Entrepreneurship refers to the activity of starting and running a business. Entrepreneurs are a heterogeneous group, ranging from street vendors to game-changing innovators.
As a result, their economic contributions are marked by a great deal of heterogeneity. New analysis of 14,892 businesses less than 42 months old in 17 Asian Development Bank developing member countries (DMCs) suggests that a small group of dynamic entrepreneurs contribute disproportionately to the positive economic impact of entrepreneurship. For example, just 0.4% of the entrepreneurs in the sample account for 46% of the aggregate employment created by these businesses. Those dynamic entrepreneurs are often innovators, who are a relatively small minority of entrepreneurs.
Sustained economic growth depends on a vibrant private sector, and private sector development depends in turn on innovation and the emergence of new businesses—that is, on entrepreneurship.
Innovative entrepreneurs generate dynamic competition in which new firms, products, and technologies compete with existing counterparts. Transformative entrepreneurs often play a central role in the introduction of such game-changing products as personal computers and mobile phones. More recently, the scientist-entrepreneur couple Ugur Sahin and Özlem Türeci of BioNTech were instrumental in developing one of the world’s first safe and effective COVID-19 vaccines. Yet, despite its large economic potential, entrepreneurship remains a relatively under-researched topic in economics, in part due to a lack of good data on entrepreneurs—a gap which this chapter helps fill.
Developing Asia has reached a development stage where the private sector typically assumes a larger role in economic growth.
While the government’s role remains vital, it is increasingly to provide an enabling environment for private enterprise. As ADO (2017) points out, rapid growth has transformed Asia into a predominantly middle-income region where sustaining rapid growth becomes harder than at low-income. It is at this stage where innovation becomes critical. In economies that succeeded, such as Korea, visionary entrepreneurs and innovators created world-class companies which contributed greatly to the journey from middle to high income. The ongoing digitalization of economic activity that accelerated during COVID-19 has fortunately opened up a world of entrepreneurial opportunities. Digital entrepreneurship can thus become an engine of growth in the post-COVID world.
The global health and economic crisis triggered by COVID-19 highlighted the pivotal role of ICT in economic resilience.
ICT enabled economies and societies to continue to function under an epidemic unprecedented in modern times. New analysis of 12,990 firms in 32 countries and 28 industries globally from May to September 2020 empirically confirms a significantly positive impact from digital technology on entrepreneurial resilience during the pandemic. Compared with entrepreneurs who did not have web pages or social media presence, those that did were significantly more likely to have remained open. Digitalization enables entrepreneurs to shift more of their activities online. Digital entrepreneurship, in turn, helped keep economies afloat during the pandemic.
The Asian Development Outlook analyzes economic and development issues in developing countries in Asia. This includes forecasting the inflation and gross domestic product growth rates of countries throughout the region, including the People’s Republic of China and India.