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Asian Development Outlook, April 2021

Economic Forecasts

Growth is gaining momentum across developing Asia. While renewed COVID-19 outbreaks show the pandemic is still a threat, the region’s economic revival is underway, supported by a healthy global recovery and progress on vaccines.

Key Messages

  • Developing Asia’s economy shrank by 0.2% in 2020, and divergences emerged within the region.
  • Recovery has begun in developing Asia, but at different speeds. Growth in most regional economies strengthened in the latter part of 2020.
  • Inflation in developing Asia will remain generally benign. Average inflation in the region is forecast to fall from 2.8% in 2020 to 2.3% in 2021.
  • Risks are tilted to the downside and depend mainly on how the COVID-19 pandemic unfolds.
  • The theme chapter discusses the need for developing Asia to build back better from the COVID-19 pandemic, and this requires mobilizing large amounts of capital from both public and private sources.

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Developing Asia Outlook

Developing Asia's economic revival is underway, supported by a healthy global recovery and progress on vaccines. The region’s growth is forecast to rebound to 7.3% in 2021, moderating to 5.3% in 2022. Excluding high-income newly industrialized economies, growth of 7.7% is forecast for this year and 5.6% for next year.

ADB Chief Economist Yasuyuki Sawada explains how economic growth in developing Asia is set to rebound in 2021, supported by a healthy global recovery and progress on COVID-19 vaccines.

Inflation

Inflation dynamics are projected to stay muted despite rising international commodity prices, as substantial slack in many economies will contain inflationary pressures. Average inflation in the region is forecast to fall from 2.8% in 2020 to 2.3% in 2021, as food-price pressures ease and inflation moderates in India and the PRC. Prices in 2022 are forecast to rise by 2.7%, driven mainly by the PRC, while inflation will be lower in Central Asia and South Asia—with more stable expectations on exchange rates and food prices anticipated to play a large role in these subregions.

Learning and Earning Losses from COVID-19 School Closures

School disruptions have taken extended periods of time during the pandemic, affecting millions of students in developing Asia. What students learn affect the level of skills they acquire in their lifetime, and eventually, their productivity as workers. The state of education today will affect the human capital of tomorrow, and it is important to see the long-term consequences of school closures on the quantity and quality of learning.

Made with Flourish

Theme Chapter: Financing a Green and Inclusive Recovery

Green and inclusive recovery requires both public and private capital.

Building back better and greener from the Coronavirus Disease 2019 (COVID-19) pandemic will demand large investments that are often beyond the means of the public sector alone. Promisingly, green and social finance from private sources has grown rapidly in recent years.

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Private green and social finance is becoming financially driven.

While it was investors’ environmental and social goals that initially drove global growth in sustainable investment, financial motives are increasingly coming to the fore. After the ratification of the Kyoto Protocol imposed restrictions on emissions in Australia, to cite one illustration, the debt costs of high-emitting Australian companies increased by an average of 5.4% and cost of equity rose by 2.5%, relative to low-emitting companies. Tapping green and social finance helps meet the preferences of various stakeholders, hedge and mitigate sustainability risks, and gain resilience under shocks. Green and social finance also fosters positive recognition among investors, thus broadening the financing base.

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Sustainable finance demonstratively offers environmental and social benefits.

Asian firms that issue green bonds typically show environmental performance improved by 17% 1 year after issuance and 30% 2 years after issuance, as measured by corporate environmental ratings. At the market level, green bond issuance is related to reduced CO2 emissions due to rising awareness and increased commitment of the Sustainable Development Goals (SDGs). Social impacts are more varied, but innovative financing instruments such as impact bonds show potential.

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Engaged public policy is central to nurturing social and green finance.

Governments can use a range of policy options both to shape markets and to participate in them. Regulations that enforce common standards of information disclosure and impact measurement are the most powerful policy option to support the development of green and social finance. Policy makers can align finance with the SDGs by incorporating sustainability risks into the micro- and macroprudential framework to safeguard financial stability, strengthen market infrastructure and ecosystems, and expand fiscal revenue available for development along a green, resilient, and inclusive pathway.

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Green and social finance—investments and financing instruments designed to help achieve environmental and social goals—can help Asia and the Pacific achieve a more inclusive and sustainable recovery from the COVID-19 pandemic. Governments are central in shaping the development of green and social finance, but the private sector will also have an important role to play.


Publication and Links

Asian Development Outlook (ADO) 2021

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.