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The Asian Development Bank (ADB) again lowered its forecasts for economic growth in developing Asia and the Pacific, amid mounting challenges that include increased monetary tightening by central banks, fallout from the protracted Russian invasion of Ukraine, and recurrent COVID-19 lockdowns in China.
The region’s economy is expected to grow 4.3 per cent this year, compared with the bank’s projection in April of a 5.2 per cent expansion, according to an update of the Asian Development Outlook (ADO) 2022, released on Wednesday.
The growth forecast for next year has been lowered to 4.9 per cent from 5.3 per cent, while the region’s inflation forecast has been raised. Excluding China, the rest of developing Asia is projected to grow by 5.3 per cent in both 2022 and 2023.
Domestic consumer spending and investment are driving growth as economies in the region continue to relax pandemic restrictions, thanks in part to vaccination drives and declining COVID-19 mortality.
However, the continuing invasion of Ukraine has heightened global uncertainty, worsened supply disruptions, and unsettled energy and food markets.
More aggressive monetary tightening by the US Federal Reserve and the European Central Bank is denting global demand and rattling financial markets. Meanwhile, sporadic COVID-19 outbreaks and new lockdowns have slowed growth in the PRC, the region’s largest economy.
“Developing Asia continues to recover, but risks loom large,” said ADB Chief Economist Albert Park.
“A significant downturn in the world economy would severely undermine demand for the region’s exports. Stronger-than-expected monetary tightening in advanced economies could lead to financial instability. And growth in the PRC faces challenges from recurrent lockdowns and a weak property sector. Governments in developing Asia need to remain vigilant against these risks and take the necessary steps to contain inflation without derailing growth,” Park said.
The world’s major advanced economies are forecast to grow 1.9 per cent in 2022 and 1.0 per cent in 2023, slower than projected earlier this year. High inflation has prompted the US 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.
ADB raised its forecast for inflation in developing Asia this year to 4.5 per cent from a previous projection of 3.7 per cent.
The forecast for next year is 4.0 per cent, up from 3.1 per cent. While inflation in the region remains lower than elsewhere, supply disruptions continue to push up food and fuel prices.
China’s growth outlook for this year was downgraded to 3.3 per cent from a 5.0 per cent projection in April. This will be the first year in more than 3 decades that the rest of developing Asia will grow faster than China.
The forecast for India was lowered to 7.0 per cent from 7.5 per cent, due to higher-than-expected inflation and monetary tightening.
Robust domestic demand in Indonesia and the Philippines are contributing to an improved outlook of 5.1 per cent growth this year for Southeast Asia, although weaker prospects for global demand have led to a downgrade in the forecast for next year.
The outlook for 2022 has also improved for the Caucasus and Central Asia, which is expected to see 3.9 per cent growth this year, and for the economies of the Pacific, projected to expand 4.7 per cent as tourism continues to bounce back from the pandemic.