The Asian Development Bank cut its growth forecast for the region, citing the war in Ukraine, higher interest rates in response to decades of high inflation and a slowdown in China.
The Manila-based lender cut its growth forecast for developing Asia to 4.3 percent from an earlier forecast of 5.2 percent. Growth in 2023 was revised down to 4.9% from 5.3% in a revised regional outlook released on Wednesday.
For the first time in 30 years, other developing economies in Asia will grow faster than China, ADB economists said.
The updated outlook forecasts the world’s second-largest economy will grow at an annual rate of 3.3 percent this year, down from 8.1 percent in 2021 and well below the ADB’s April estimate of 5.0 percent growth. The setback represents a prolonged slowdown in China’s economic growth and disruption from the COVID-19 outbreak, lockdowns and other measures to fight the virus.
India and Maldives are expected to experience the fastest growth at 7% and 8.2% respectively. In Sri Lanka, where the financial crisis has left the country unable to pay its debts and import goods, the economy is expected to contract by 8.8 percent, down from last year’s 3.3 percent growth.
The ADB’s forecast for inflation in Asia remains less severe than in the United States and some other economies, at 4.5% in 2022 and 4.0% next year. But Sri Lanka’s inflation rate is close to 45 percent this year, while prices are expected to rise 16 percent in Myanmar and nearly 15 percent in Mongolia, the report showed.
Inflation has also risen sharply in Laos and Pakistan, whose economies are threatened by rising debt burdens and slowing growth.
The report shows that soaring food and oil and gas costs have been the main factors behind price increases, noting that “while global food and energy prices have been falling recently, it will take time for these declines to translate into lower domestic prices.”
Most Southeast Asian economies are expected to maintain a strong pace of growth as tourism reopens and demand recovers. Domestic consumer spending, investment and remittances from overseas workers are also driving stronger business activity, the report said.
But the demand driving the growth remains relatively weak: Although exports from the region rose 15% year-on-year in the first half of the year, much of that reflected higher prices, with real export volumes up just 5.2%. Exports fell in July and August.
Meanwhile, demand for electronics and their components from the pandemic has subsided and export growth has slowed as people adjust to remote work and school.
The silver lining of the slowdown in demand is that supply delays and shortages have eased, and transportation costs have fallen sharply. Shipping a container from East Asia to the US cost $7,000 by the end of August, down from $16,000 in January.
The report noted that by the end of August, coronavirus vaccination rates across the region were at 73%, similar to the European Union, with only a few countries achieving near-universal coverage.
It said further outbreaks remained a risk to the region. As governments have imposed sanctions on Moscow, so have developments in Ukraine, such as the European Union’s decision to ban seaborne imports of Russian oil by the end of the year.