ADB cuts Asia growth outlook again as global risks rise

News Desk
Thursday, Sep 22, 2022

MANILA: The Asian Development Bank has again lowered its growth forecasts for the region, as global monetary tightening, the protracted war in Ukraine and the slowdown in China keep challenging the economic recovery.

The Manila-based multilateral bank on Wednesday cut its 2022 and 2023 economic growth forecasts for developing Asia, a region comprising 46 of its members, including China, South Korea and India. It now expects growth of 4.3 percent this year, down from the 5.2 percent it projected in April, and lowered next year's view to 4.9 percent from 5.3 percent.

There are two main drivers behind the downgrades, ADB Chief Economist Albert Park told Dow Jones Newswires.

"One is the slowdown in China," he said. "That's been associated with the zero-Covid policy, which has really dampened consumer sentiment in China and led to supply-chain bottlenecks there that have affected other economies and also reduced demand coming from there."

China's growth outlook for this year has been slashed to 3.3 percent from 5.0 percent previously.

Excluding its largest economy, the region is tipped to grow 5.3 percent in both 2022 and 2023.

"This will be the first year in more than three decades that the rest of developing Asia will grow faster than the PRC (People's Republic of China)," the bank said in a statement.

"The second big factor is U.S. Fed tightening, which has been more aggressive than we had anticipated in April," Park said. "

All of that is a function of the continued inflationary pressures that we've been seeing globally exacerbated by the war in Ukraine."

Those pressures are expected to persist, with inflation in developing Asia now seen reaching 4.5 percent in 2022 versus the 3.7 percent predicted previously. In 2023, that figure is tipped to climb to 4.0 percent, from 3.1 percent before.

Yet despite these headwinds, reopening policies are sustaining the region's recovery, strengthening domestic demand, the bank said.

Indonesia and the Philippines offer bright spots, with robust domestic demand helping improve the outlook for Southeast Asia.

The subregion is expected to expand 5.1 percent this year, up from the 4.9 percent projected in April, though weaker global demand prospects drag next year's forecast down to 5.0 percent from 5.2 percent.

"It should be emphasized that although we're downgrading our growth projections, we're still projecting 4.3 percent growth [for developing Asia], which under the current global situation is much better than other parts of the world," Park said.

The ADB has also cut expectations for major advanced economies, noting that "high inflation has prompted the U.S. and the euro area to aggressively tighten monetary policy, weakening demand in these economies, which also continue to be affected by supply-chain disruptions and uncertainty from the invasion of Ukraine."

Japan's recovery, meanwhile, will be held back by weaker exports amid the supply-chain disruptions and the delayed resumption of foreign tourist arrivals, the bank said.

It expects 2022 GDP growth of 1.4 percent, 1.6 percent and 2.5 percent for Japan, the U.S. and the euro zone, respectively.