Asia’s developing economies led by China are on course for faster growth and moderating inflation this year and next, even as advanced economies are contributing to a darker global outlook, the Asian Development Bank said.
(Bloomberg) — Asia’s developing economies led by China are on course for faster growth and moderating inflation this year and next, even as advanced economies are contributing to a darker global outlook, the Asian Development Bank said.
The group’s 46 member nations across the continent are set to grow at 4.8% in 2023 and 2024, faster than the 4.2% last year, the ADB said in an update to its regional forecasts released Tuesday. Inflation should moderate to 4.2% this year in a slight easing from 4.4% in 2022.
China’s reopening looms large in the group’s projections, with the ADB seeing further knock-on effects to growth, including via boosts to tourist arrivals throughout the region. The world’s No. 2 economy also has had well-managed inflation given the lack of big stimulus packages and broadly balanced demand and supply, and the ADB analysts don’t see a significant boost to regional and global inflation from Beijing’s reopening.
Inflation risks, though, are skewed to the higher side, the ADB analysts said — especially with the OPEC+ surprise announcement to slash production by one million barrels.
“We anticipated that supply would remain somewhat constrained this year,” given higher demand from China amid its rebound, said Albert Park, ADB chief economist. Having penciled in an oil-price average of $88 a barrel this year and $90 in 2024 before OPEC’s production cut, “it’s certainly plausible oil prices could go even higher,” he said.
Excluding China from their forecasts, the ADB analysts see the region’s inflation accelerating 6.2% this year and 4.5% in 2024, down from 6.7% in 2022.
Among other highlights in the ADB report and briefing:
Banking Turmoil
Banking turmoil should have limited impact in Asia, in part because very few banks in the region have direct exposure to the three big bank failures in the US and Europe, Park said.
Sufficient capital in Asian banks should limit perceived vulnerabilities, and US and European regulators have been aggressive in assuring depositors, so those sectors appear to be safe and stable, he said.
Monetary Policy
The region’s central bankers, who were largely focused on hikes last year, are now tilting more toward holding policy as fiscal balances improve where growth is rebounding, and budget plans across the region largely expect further growth this year, according to the report.
Dollar Impact
Much of developing Asia has seen a rebound in foreign portfolio flows from the end of last year, alongside a cushion to regional currencies as the dollar has been on a weakening trend. An easing in financial conditions, however, stalled in February and March with sticky inflation and amid banking dramas abroad, the ADB said.
Production Improvement
After lockdowns in China into late last year hampered production and export orders across the region’s economies, some business conditions indicators were showing improvement in early 2023.
Asia’s powerhouse exporters, though, still have plenty to contend with: waning global demand, easing of orders in semiconductors and other electronics categories, and a post-Covid shift more broadly toward services rather than goods purchases are lingering headwinds, Park said.
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