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Economic Forecasts for Asia and the Pacific: September 2024
Growth in developing Asia and the Pacific remained strong during the first half of 2024, supported by domestic demand and a continued recovery in exports. High-income technology exporters benefited from rising global semiconductor sales driven by strong demand for artificial intelligence products. Meanwhile, inflation continued to decline, driven by the lagged effects of tight monetary policy and easing global food prices. The growth outlook for developing Asia and the Pacific has been raised to 5.0% for 2024 from 4.9% in April. The 2025 growth projection remains at 4.9%. Inflation in the region is forecast at 2.8% for 2024, down from 3.2% in April, due to currency appreciation in the Caucasus and Central Asia and a slower-than-expected bottoming out of food prices in the People’s Republic of China (PRC). The inflation forecast for 2025 is revised down to 2.9% from an April forecast of 3.0%.
There are still risks to the outlook. Rising protectionism, depending on the outcome of the presidential election in the United States, could lead to negative real and financial spillovers in developing Asia. Other risks include escalating geopolitical tensions, a deterioration in the PRC’s property market, and adverse weather conditions.
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The Asian Development Outlook outlines policy challenges and provides recommendations at a country level.
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Developing Asia and the Pacific comprises the 46 members of the Asian Development Bank listed below by geographic group.
- Caucasus and Central Asia comprises Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.
- East Asia comprises the People’s Republic of China; Hong Kong, China; Mongolia; the Republic of Korea; and Taipei,China.
- South Asia comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
- Southeast Asia comprises Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste, and Viet Nam.
- The Pacific comprises the Cook Islands, Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
Latest Findings
Analytical Chapter: Global Spillovers from Data-Dependent Federal Reserve Monetary Policy
This chapter examines how data-driven US monetary policy affects international financial markets, focusing on the time of data releases. With the US Federal Reserve (Fed) stressing that its current easing cycle is highly dependent on incoming data, the chapter analyzes how key financial variables—government bond yields, exchange rates, stock prices, and default probabilities—across 108 economies react to data-driven changes in US monetary policy. To conduct the analysis, it constructs new measures of how data-dependent the Fed is. It shows that during times of high data dependency, significant market reactions occur around data releases, as investors anticipate their impact on Fed decisions. Recognizing these patterns, the chapter studies the spillovers that arise around the time of US data releases, particularly those related to inflation and employment.
Inflation- and employment-driven Fed policy changes affect debt, currency, and equity markets in other economies. For instance, when the Fed is highly attentive to inflation data, an inflation release that is 0.1 percentage point higher than expected causes foreign short-term government bond yields to increase 2 basis points, currencies to depreciate 0.1% vis-à-vis the US dollar, stock markets to decline 0.2%, and government default probabilities to increase 0.1 percentage points, on average. When the Fed is highly attentive to employment data, a nonfarm payroll employment release that is 100,000 jobs higher than expected causes currencies to depreciate 0.2% against the US dollar, and short-term and long-term bond yields to increase about 4 basis points. Effects on stock markets and default probabilities are not statistically significant.
A scenario where the US economy cools more than currently anticipated would lead to a substantial easing of financial conditions. Specifically, the chapter considers the effects of US inflation dropping to 2.1%—lower than the expected 2.5%—by the end of 2024, coupled with stagnant net employment creation for the remainder of the year, as opposed to the +129,000 monthly net job gains expected by investors. If this scenario materializes, short- and long-term foreign bond yields could decrease approximately 95 and 30 basis points, respectively. It could also lead to a 4.5% appreciation of currencies against the US dollar, a 5% rise in stock markets, and a reduction in government default probabilities of nearly 3 percentage points.
An economy’s macroeconomic conditions can amplify or mitigate spillovers from data-driven US monetary policy. The analysis finds that larger external debts, higher inflation, and weaker current account and fiscal balances amplify the effects of data-driven US monetary policy. To give a concrete example, the empirical estimates suggest that in a scenario where US inflation were to unexpectedly rise to 2.9% by the end of 2024, an economy in the bottom quartile of current account performance could see its short- and long-term bond yields increase about 70 basis points more than an economy in the top quartile. This suggests that policymakers who can maintain macroeconomic stability and sound fiscal management can buffer their economies from the adverse effects of shifts in US monetary policy, particularly in times of high Fed data dependency.
Special Analysis: La Niña’s Effect on Commodity Prices
The likely return of La Niña could bring volatility to global commodity markets. Countries such as India (producing rice, wheat, and sugarcane), Indonesia and Malaysia (producing palm oil and rice), and Australia (producing barley and canola) are likely to experience substantial increases in agricultural output. This boost is expected to lower commodity prices and help alleviate inflation risks in these areas. Meanwhile, heavier and more frequent rainfall may disrupt the transport and extraction of key minerals in Southeast Asia. La Niña exacerbates the risk of flooding and landslides in Indonesia, where the mining of coal, copper, nickel, and bauxite is already frequently disrupted due to heavy seasonal rainfall. And in the energy sector, La Niña often leads to colder-than-average winter temperatures in North Asia, driving short-term increases in the demand for thermal coal and natural gas.
The effects of La Niña are highly contingent on the event’s strength and duration. Historical data show that La Niña’s impact on commodity prices varies. Some events cause price increases due to supply reductions or higher production costs from extreme weather, while others lead to lower prices if increased production in certain regions offsets disruptions elsewhere. Broader economic conditions, sector-specific factors, and government policies also influence La Niña’s impact. Governments can mitigate these effects by enhancing early warning systems, improving infrastructure resilience, managing water resources, supporting vulnerable populations, and coordinating disaster preparedness efforts.
Outlook by Subregion
Caucasus and Central Asia
Growth projections are higher for both 2024 and 2025, driven by stronger-than-expected domestic demand. The subregion is now expected to grow by 4.7% in 2024 and 5.2% in 2025, up by 0.4 and 0.2 percentage points, respectively, from April’s estimates.
In Armenia, the 2024 growth forecast is adjusted upward to 6.0% on account of a first half performance driven by industry, while remaining unchanged in 2025 at 6.0%. Azerbaijan’s projections are raised to 2.7% in 2024 and 2.6% in 2025, fueled by higher public spending on reconstruction. Georgia recorded faster-than-expected growth in the first half of 2024, on robust domestic consumption, and supported by strong credit growth, exports, and tourism receipts. Consequently, growth is revised up to 7.0% in 2024 while remaining at 5.5% in 2025. Similarly, in the Kyrgyz Republic, consumption is expected to drive growth, with higher forecasts at 6.3% in 2024 and 5.8% in 2025, supported by remittances and improved prospects in agriculture and industry sectors. In Uzbekistan, steady growth in consumption and investment, particularly in infrastructure and machineries and equipment, is projected to boost growth to 6.0% in 2024 and 6.2% in 2025. In contrast, Kazakhstan’s growth forecast is lowered to 3.6% in 2024 and 5.1% in 2025, due to reduced oil production in line with the OPEC+ agreement. Meanwhile, the growth projections for Tajikistan and Turkmenistan for 2024 and 2025 remain unchanged from April’s forecasts.
Tight monetary policy and currency appreciation will further drive down inflation. Inflation for the subregion is adjusted to 6.9% in 2024 and 6.2% in 2025, down by 1.0 and 0.8 percentage points from April’s estimates, respectively.
In Azerbaijan, the inflation forecast for 2024 is significantly lower at 2.1%, from 5.5% in April, due to easing of global commodity prices and the impact of a series of monetary tightening measures. The central bank cut its key policy rate by 50 basis points from January to July to 7.25% to spur consumption, and this is expected to partly offset downward pressures on inflation in the near term. In Turkmenistan, projections are also lowered, to 5.0%, in 2024 and 2025, from 8.0% previously, amid tight monetary policy and exchange rate and price control measures. The inflation forecast for Uzbekistan is revised down to 9.5% in 2024 due to better-than-expected supply of agricultural products and lower cost of imported goods. In July 2024, the central bank reduced its key policy rate by 50 basis points to 13.5% as inflation moderated. Currency appreciation contributed to the downward revision in the inflation forecasts of Kazakhstan and Kyrgyz Republic.
East Asia
Growth is revised to 4.6% from 4.5% due to higher-than-expected external demand for semiconductors from the Republic of Korea and Taipei,China. The growth forecast for the PRC is retained at 4.8% in 2024 and 4.5% in 2025. The economy is expected to remain stable despite the prolonged downturn in the property sector, which is likely to persist throughout the year.
Growth forecasts for the Republic of Korea and Taipei,China for 2024 are revised upward to 2.5% and 3.5%, respectively, on stronger-than-expected exports of semiconductors and AI-related goods in the first half of the year. For 2025, growth forecasts for the Republic of Korea and Taipei,China remain unchanged at 2.3% and 2.7%, respectively. Growth projections for Hong Kong, China are retained at 2.8% in 2024 and 3.0% in 2025.
Declining food and property prices due to weak domestic demand will continue to suppress the PRC’s inflation. The 2024 inflation forecast for the PRC has been adjusted downwards from 1.1% in the April ADO 2024 to 0.5%, due to delayed bottoming out of food prices and the ongoing property sector weakness. For 2025, inflation is projected at 1.2%, down from 1.5% in April, as domestic demand remains subdued.
The forecast for Hong Kong, China is revised down to 1.8% in 2024, from April’s 2.3%, reflecting slower-than-anticipated inflation in H1 2024 on subdued domestic demand. Inflation is expected to reach 2.3% in 2025. The inflation forecast for 2025 is unchanged at 2.2%. In the Republic of Korea, inflation is expected to moderate to 2.5% in 2024 and 2.0% in 2025, similar to April’s projections. For Taipei,China, inflation will decelerate to 2.3% in 2024 and 2.0% in 2025, following a rate hike in March 2024 and the easing of global price pressures.
South Asia
South Asia’s growth forecast for 2024 is maintained at 6.3%, fueled by solid growth in India. India’s growth forecasts are retained at 7.0% for fiscal year (FY) 2024 and 7.2% for FY2025, in line with April projections, supported by broad-based expansion across sectors.
Bhutan’s 2024 growth outlook is revised to 5.5%, up from 4.4% in April, driven by the earlier- than-expected completion of the Punatsangchhu II hydropower plant, which will boost electricity generation. The growth forecast for 2025 is maintained at 7.0%. Nepal’s economy expanded 3.9% in FY2024, driven by higher agricultural output, increased tourist arrivals, and greater electricity generation. The growth forecast for 2025 has been slightly raised to 4.9%, as the government ramps up infrastructure spending and considers further monetary easing. Pakistan’s economy expanded by 2.4% in FY2024, driven by higher consumption following the government’s economic stabilization and reform program. Growth is projected to further improve to 2.8% in FY2025, supported by a revival in private investment. Sri Lanka’s growth forecast is adjusted upwards to 2.6% in 2024 and 2.8% in 2025, supported by progress on debt restructuring and effects of monetary policy easing. However, these gains were partially offset by downward revisions in Bangladesh largely due to supply disruptions caused by the political unrest in July and August 2024, and in Maldives as the construction sector is anticipated to decline further due to planned reductions in public sector investment.
Inflation projections are maintained for 2024 and raised for 2025. Headline inflation for the subregion is expected to moderate to 7.0% in 2024 from 8.4% in 2023, and further to 6.1% in 2025. There are notable revisions among the economies.
India’s inflation is revised up to 4.7% by 0.1 percentage points in 2024, owing to higher-than-expected food inflation from adverse weather conditions. For 2025, the inflation forecast is maintained at 4.5%. In Bangladesh, inflation rose to 9.7% in FY2024, driven primarily by high food prices. The FY2025 forecast is up 3.1 percentage points from April estimates, to 10.1% due to supply chain disruptions and rising import costs due to currency depreciation. Pakistan’s inflation slowed to 23.4% in FY2024 mainly on lower food inflation resulting from higher agriculture production. Inflation in 2025 is expected to moderate to 15.0%, supported by a tighter monetary policy and more stable global commodity prices. Sri Lanka’s inflation is revised down 3.7 percentage points to 3.8% in 2024, due to significant reductions in utility prices and weak domestic demand resulting in slower-than-expected inflation in the first half of the year. Inflation is expected to pick up to 5.5% in 2025 as growth recovers.
Southeast Asia
Subdued government capital spending and slower-than-expected export recovery will weigh on growth in Southeast Asia this year. The subregional growth outlook for 2024 is revised down to 4.5%, driven by downward revisions in Myanmar, Thailand, and Timor-Leste.
Lower-than-expected government spending and weaker-than-expected export recovery underpinned the downward adjustment in Thailand’s growth outlook to 2.3% in 2024 and 2.7% in 2025, down 0.3 percentage points from April’s projections. Again, lower public spending due to delays in capital-intensive projects led to the revision for Timor-Leste to 3.1% in 2024 and 3.9% in 2025. In Myanmar, macroeconomic instability, rising input costs and declining investment amid the ongoing conflict resulted in a downward revision of the growth forecast to 0.8% in 2024 and 1.7% in 2025. Meanwhile, the growth projection is retained for the rest of Southeast Asia’s economies, apart from Singapore, where higher export growth led to an upward revision.
Currency depreciations in the Lao PDR and Myanmar have contributed to upward revisions in the inflation forecast for Southeast Asia. The 2024 inflation forecast for the subregion has been revised upward to 3.3% from 3.2% in April. Lao PDR’s forecast has surged to 25.0%, the highest among all 46 economies in developing Asia, while Myanmar’s has risen to 20.7%, both driven by the depreciation of their currencies, which has intensified domestic inflationary pressures. For 2025, the inflation projection for the subregion is raised to 3.2%.
On the other hand, inflation was revised downward for some economies, including Brunei Darussalam, Cambodia, Malaysia, the Philippines, Singapore, Thailand, and Timor-Leste. A stronger-than-expected easing of global commodity prices, as well as currency appreciation in some cases, were contributory factors.
The Pacific
Tourism is expected to remain a key driver of growth in the Pacific. The subregional growth forecasts are raised to 3.4% for 2024 and 4.1% for 2025, up by 0.1 percentage point from April estimates. Looking ahead to 2025, growth for the Pacific is expected to increase to 4.1%, driven primarily by higher visitor arrivals.
Forecasts for this year and next for Cook Islands, Fiji, Kiribati, Nauru, Samoa, and Solomon Islands are better than initially estimated in April, due to sustained growth in visitor arrivals and an increase in public sector wages in some economies. However, downward adjustments in the 2024 growth numbers of Marshall Islands, Papua New Guinea, Tonga, and Vanuatu have partially weighed on overall subregional growth. Papua New Guinea’s 2024 growth outlook is slightly revised down to 3.2% due to lower-than-expected output in the resource sector. Tonga’s growth outlook is also lowered to 2.0% on weaker-than-expected agricultural output due to El Niño. The liquidation of Air Vanuatu dampened economic activity in Vanuatu, while there were downward data revisions for the Marshall Islands.
Slower-than-expected inflation in the first half of 2024 led to a downward revision of the inflation forecast for the Pacific, to 3.6%. The forecast is lowered mainly due to revisions in Nauru, Papua New Guinea, Samoa, and Tuvalu. For 2025, the inflation forecast is unchanged at 4.1%.
In Papua New Guinea, inflation fell more than expected in the first half due to lower prices for alcoholic beverages, tobacco, betelnut, household equipment, and communication costs. Similarly, in Samoa and Tuvalu, inflation slowed more than expected due to subdued food and transportation costs. Communication costs are anticipated to decline further in Nauru following a recent agreement that will introduce fee-based public access to the internet. These outweighed upward adjustments in Cook Islands, Fiji, Kiribati, Marshall Islands, and Tonga.
Publication and Links
Asian Development Outlook September 2024
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.