The Asian Development Bank cut its growth forecast for the region, citing the war in Ukraine, high interest rates to combat decades of high inflation, and a slowing Chinese economy.
The Manila, Philippines-based lending agency revised its estimate for growth in developing Asian economies to 4.3 percent, down from a previous forecast of 5.2 percent. Growth in 2023 was cut to 4.9 percent from 5.3 percent in the revised regional forecast released on Wednesday.
Economists at the Asian Development Bank said that for the first time in three decades, other developing Asian economies will grow faster than China.
The updated forecast expects the world’s second-largest economy to expand at an annual pace of 3.3 percent this year, down from 8.1 percent in 2021 and well below the Asian Development Bank’s estimate in April of an expansion of 5.0 percent. The setback represents a prolonged slowdown in China’s growth along with disruptions from the COVID-19 outbreak, lockdowns and other measures to combat the virus.
India and Maldives were expected to see the fastest expansions at 7 percent and 8.2 percent, respectively. In Sri Lanka, where the financial crisis has left the country unable to repay its debts and take on imports, the economy is expected to contract 8.8 percent, down from the pace of growth of 3.3 percent last year.
The Asian Development Bank’s forecast for inflation in Asia remains lower than in the United States and some other economies, at 4.5 percent in 2022 and 4.0 percent next year. But the report estimated inflation in Sri Lanka at about 45 percent this year, while prices were expected to rise by 16 percent in Myanmar and about 15 percent in Mongolia.
Inflation has also risen sharply in Laos and Pakistan, two other countries whose economies are at risk due to mounting debt burdens and weak growth.
The report showed that rising grain, oil and gas costs were a major factor behind the price hike, noting that “while global food and energy prices have been declining recently, it will take time for these declines to translate into lower domestic prices.”
Most Southeast Asian economies are expected to maintain a robust pace of growth as they reopen to tourism and demand recovers. The report said domestic consumer spending, investment and remittances from workers abroad are also driving stronger business activity.
But the demand driving growth remains relatively weak: while exports across the region rose 15 percent from a year earlier in the first half of the year, most of that reflected higher prices, with the real volume of exports rising only 5.2 percent. Exports fell in July and August.
Meanwhile, the pandemic boom in demand for electronic products and components has waned, as people adapt to remote work and education, which has also slowed export growth.
The bright side of this moderation in demand was that supply delays and shortages had eased, and shipping costs had fallen sharply. By late August, the cost of shipping a container from East Asia to the US was $7,000, down from $16,000 in January.
The report indicated that coronavirus vaccination rates across the region, at 73 percent of full vaccinations through the end of August, were similar to those in the European Union, with only a few countries having near-universal coverage.
She added that the outbreak continues to pose a threat to the region. So do developments in Ukraine, where governments impose sanctions on Moscow, such as the European Union’s decision to ban seaborne imports of Russian oil by the end of the year.