The Asian Development Bank (ADB) forecasts faster growth for developing economies in Asia and the Pacific at 4.8% this year and next year, as the continued easing of pandemic restrictions boosts consumption, tourism, and investment.
In Southeast Asia, strong tourism performance and robust domestic demand are boosting economies like Indonesia, the Philippines, and Viet Nam, with the subregion projected to grow by 4.7% this year and 5.0% in 2024, according to the Asian Development Outlook (ADO) April 2023.
Released recently, the report said the People’s Republic of China’s (PRC) reopening—as it pivots away from its zero-COVID strategy—is the main factor brightening the region’s growth prospects.
Excluding the PRC, developing Asia is expected to grow 4.6% this year and 5.1% in 2024. The region’s inflation, meanwhile, is forecast to moderate gradually toward pre-pandemic levels, though there is considerable variation across economies.
Improved consumption and investment are boosting recovery in many regional economies, offsetting the impacts of elevated food and energy prices caused by the Russian invasion of Ukraine and other global headwinds. Tourism and remittances are trending upward as pandemic restrictions ease further. In many tourism-dependent economies, visitor arrivals are steadily improving toward pre-pandemic levels.
Risks and challenges
Risks to the outlook persist, however. A protracted or escalated Russian invasion of Ukraine could stoke renewed spikes in commodity prices and global inflation and induce further monetary tightening. Tighter global financial conditions, combined with the increase in debt over the past decade and during the pandemic, have elevated financial stability risks, as evidenced by the recent banking sector turmoil in the United States and Europe. These risks must be carefully monitored and proactively addressed, according to ADO April 2023.
“Prospects for economies in Asia and the Pacific are brighter, and they’re poised for a strong recovery as we return to normalization following the pandemic,” said ADB Chief Economist Albert Park. “People are starting to travel again for leisure and work, and economic activities are gathering pace. Because many challenges remain, governments in the region need to stay focused on policies that support stronger cooperation and integration to promote trade, investment, productivity, and resilience.”
Regional inflation will decelerate to 4.2% in 2023 and 3.3% in 2024 after reaching 4.4% last year. Fading supply chain pressures, tighter monetary conditions, and declining though still elevated commodity prices are expected to shape developing Asia’s inflation outlook.
Outlook for BIMP-EAGA countries
Brunei Darussalam. Growth resumed in late 2022 with the reopening of borders and easing of travel restrictions. Inflation surged because of supply chain disruption. Growth is forecast to rise in the medium term with higher production of petroleum and chemical products. Inflation should ease as global supply conditions normalize. A significant challenge is diversifying the economy to ensure more balanced sources of future growth.
Indonesia. Growth rose in 2022. Exports boomed, supporting growth and generating windfall fiscal revenues. Higher commodity prices raised inflation—not as much as expected but enough to dampen consumption and investment and spur monetary tightening. External debt inflows decreased, foreign reserves fell, and the rupiah weakened. For 2023, slower global growth will contain exports and growth. For the medium term, repairing the impact of the recession will be challenging.
Malaysia. Growth exceeded expectations in 2022, buoyed by strong domestic consumption and a rebound in services as borders reopened and economic activity normalized. Inflation remained broadly muted, dampened by government subsidies and price controls. A less accommodative monetary stance was adopted in response to higher global interest rates. Growth is expected to moderate, and inflation to decelerate, in 2023 and 2024, mainly tracking changes in the global environment. Malaysia should promote gender-inclusive policies to boost women’s participation in the labor market.
Philippines. Robust investment and consumption drove high GDP growth in 2022. Growth is projected to moderate but will still be strong at 6.0% this year and 6.2% next. A recent buildup of inflationary pressure will moderate next year as tighter monetary policy takes effect. The current account will continue to post deficits partly because of brisk imports of investment goods. Strengthening food security is vital to ensuring inclusive growth.
BIMP-EAGA
