ECONOMIC growth in Asean plus China, Japan and South Korea (Asean+3) is expected to be “robust” in 2023, with China leading the rebound despite the challenging global environment, the Asean+3 Macroeconomic Research Office (Amro) said on Thursday (Apr 6).

The macroeconomics surveillance organisation upgraded its 2023 forecast for the Asean+3 region to 4.6 per cent, from an earlier projection of 4.3 per cent made in January.

This reflects the economic recovery in the “plus 3” economies of China, Japan and South Korea, where growth is expected to hit 4.5 per cent, up from 2.6 per cent last year.

Growth in the Asean region is expected to moderate to 4.9 per cent this year, from 5.6 per cent previously.

Amro’s latest projections are a shade rosier than its earlier forecast of 4.2 per cent for China, Japan and South Korea, and 4.8 per cent for Asean.

“Our view is that the growth in the Asean+3 region is robust,” Amro chief economist Khor Hoe Ee said during a briefing for the launch of Amro’s Regional Economic Outlook 2023 report on Thursday.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

“It’s anchored by strong domestic demand, and goods exports will continue to weaken because of the slowdown in the US and Europe, but services exports are expected to strengthen with the reopening of the economy, especially with the rebound in tourism.”

He added that China’s reopening has provided “a very timely boost” for the region’s growth, providing support in both services and goods exports.

Amro expects China’s 2023 gross domestic product to hit 5.5 per cent, which is higher than the official forecast of “around 5 per cent”.

In response to questions, Dr Khor said that Amro’s optimism is aligned with private sector consensus for China, which had rebounded sharply after the authorities lifted its zero-Covid policy, contrary to expectations at that time of a slower paced and bumpy recovery.

“As it turns out, by late January and February, I think the indicators showed that the economy was rebounding very rapidly, and most analysts at that time started to revise their forecasts upwards, so we have also done the same,” he noted.

However, trade in China is likely to be “much weaker than before”, with the extent dependent on how much the economies in the US and the eurozone weaken.

Still, Dr Khor noted that China has a huge market of 1.4 billion people. “Much of the demand is driven by domestic spending, rather than the export side, so that’s going to be the main driver of growth for the Chinese economy.”

Within the Asean region, Indonesia, Malaysia, the Philippines, Singapore and Vietnam are poised for slower growth this year, weighed down by weaker external demand stemming from the slowdown in the US and Europe.

However, the negative outlook for merchandise exports will be partially offset by the recovery of travel and tourism, said the report, with the return of Chinese tourists expected to especially benefit Cambodia and Thailand.

Meanwhile, inflation is expected to remain elevated and hover around 4.5 per cent this year, but it should moderate to 3 per cent next year, said Dr Khor.

On the whole, the outlook for the Asean+3 is “beset by uncertainty”, with fallout from the Russia-Ukraine war on global energy prices posing the most immediate risk, said the Amro report.

“As most economies in the region are net energy importers, a sustained hike in energy prices would exacerbate the current cost-of-living crisis and drag down private consumption, which is an important domestic growth engine,” it added.

Another shock to global energy prices following the one in early 2022, in conjunction with a global economic slowdown, would be a “major blow”, it pointed out.

Risks of low likelihood in the short term include a more virulent Covid-19 variant, slower-than-expected recovery in China and a sharper slowdown in the US. Heightened geopolitical tensions could also hurt the region’s medium and long-term growth prospects. In particular, the “increasingly acrimonious strategic rivalry” between the US and China presents the biggest threat to the region’s growth over the medium term.

Meanwhile, climate change, natural disasters and cyberattacks are considered “perennial risks”.

Amro’s report also noted that policymakers in the region are largely ending the extraordinary stimulus measures introduced during the Covid-19 pandemic, and shifting to restoring policy buffers.

Rising inflation and a less supportive global economic landscape have compelled monetary policy tightening in some economies, while maintaining targeted fiscal support to safeguard growth, it added.