Asia set for faster growth, easing inflation this year: ADB

Singapore – 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.

The group’s 46 member nations across the continent are set to grow at 4.8 per cent in 2023, up from its 4.6 per cent projection last December and 4.2 per cent growth last year, the ADB said in an update to its regional forecasts released on Tuesday.

Inflation should moderate to 4.2 per cent this year in a slight easing from 4.4 per cent in 2022, it added.

China’s reopening looms large in the group’s projections, with the ADB seeing further knock-on effects to growth, including via boosts to tourist arrivals throughout the region.

The world’s No. 2 economy has also had well-managed inflation, given the lack of big stimulus packages and broadly balanced demand and supply, and ADB analysts do not see a significant boost to regional and global inflation from Beijing’s reopening.

Inflation risks, though, are skewed to the higher side, the analysts said – especially with the Opec+ surprise announcement to slash production by one million barrels per day.

“We anticipated that supply would remain somewhat constrained this year”, given higher demand from China amid its rebound, said ADB chief economist Albert Park.

Having pencilled in an oil price average of US$88 a barrel in 2023 and US$90 in 2024 before Opec’s production cut, “it is certainly plausible oil prices could go even higher”, he said.

Excluding China from their forecasts, ADB analysts see the region’s inflation accelerating to 6.2 per cent in 2023 and 4.5 per cent in 2024, down from 6.7 per cent in 2022.

Here are other highlights in the ADB report and briefing:

Banking turmoil

Banking turmoil 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 United States and Europe, Dr Park said.

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.

Monetary policy

The region’s central bankers, who were largely focused on hikes in 2022, are now tilting more towards holding policy as fiscal balances improve where growth is rebounding, and budget plans across the region largely expect further growth in 2023, according to the report.

US dollar impact

Much of developing Asia has seen a rebound in foreign portfolio flows since the end of last year, alongside a cushion to regional currencies as the US dollar has been on a weakening trend. An easing in financial conditions, however, stalled in February and March with sticky inflation and amid banking dramas abroad, the ADB said.

Manufacturing

After lockdowns in China until late last year hampered production and export orders across the region’s economies, some business condition 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-19 shift more broadly towards services rather than goods purchases are lingering headwinds, Dr Park said.

BLOOMBERG