Asia set for faster growth, easing inflation in 2023: ADB

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 (ADB) said on Tuesday (Apr 4).

The 46 member nations across the continent are set to grow at 4.8 per cent in 2023 and 2024, faster than the 4.2 per cent last year, the ADB said in an update to its regional forecasts. Inflation should moderate to 4.2 per cent this year, in a slight easing from 4.4 per cent in 2022.

China’s reopening looms large in the group’s projections, with the ADB anticipating further knock-on effects to growth, including via boosts to tourist arrivals throughout the region. The world’s second-largest economy also has had well-managed inflation given the lack of big stimulus packages and broadly balanced demand and supply. ADB analysts said they did not 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 surprise announcement by Opec+ to slash production by more than one million barrels per day.

Albert Park, ADB’s chief economist, said the bank “anticipated that supply would remain somewhat constrained this year” given higher demand from China amid its rebound. Having pencilled in an oil-price average of US$88 a barrel this year and US$90 in 2024 before the Opec+ production cut, “it’s certainly plausible oil prices could go even higher”, he added.

Excluding China from their forecasts, the ADB analysts said they expect the region’s inflation accelerating to 6.2 per cent this year and 4.5 per cent in 2024, down from 6.7 per cent in 2022.

On the matter of banking turmoil, Park said it 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.

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.

The analysts said that the region’s central bankers, who were largely focused on hikes last year, are now tilting more towards holding policy. They added that this comes as fiscal balances improve where growth is rebounding, and budget plans across the region largely expect further growth this year.

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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 US dollar has been on a weakening trend. The analysts noted that an easing in financial conditions, however, stalled in February and March with sticky inflation and amid banking dramas abroad.

After lockdowns in China – which lasted 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 towards services rather than goods purchases are lingering headwinds, Park said. BLOOMBERG