Asia — particularly Southeast Asia — remains a bright spot, even as the global economy looks set to slide into recession next year, economists say.
The strong economic recovery in Asia earlier this year has lost momentum to three “impressive headwinds” – namely rising interest rates, the war in Ukraine and the impact of China’s subdued economic activity, the International Monetary Fund said last week.
“Nonetheless, Asia remains a relative bright spot in an increasingly flagging global economy,” said the IMF in its most recent forecast report, Asia Sails Into Headwinds From Rate Hikes, War, and China Slowdown.
The IMF forecasts growth of 4% for Asia and the Pacific this year and 4.3% in 2023, both below the 5.5% average over the past two decades.
Still, they’re ahead of the fund’s forecasts for Europe and the US. For the euro area, the IMF expects growth of 3.1% in 2022 and 0.5% in 2023; and 1.6% growth this year and 1% next year for the US
China will recover a muted year and could post growth of 3.2% this year before accelerating to 4.4% next year provided its Covid-zero policy is gradually eased, the IMF says.
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Overall, Asia’s trajectory will be different from many advanced economies like Europe, as it serves as a “useful diversifier that is to some extent isolated from the struggles in Europe,” Fidelity’s portfolio manager Taosha Wang said in a note last week.
“This means more leeway for pro-growth policies in the region, which differs from many other parts of the world where high inflation is forcing central banks to tighten financing conditions,” Wang said.
Strong rebound in Southeast Asia
Southeast Asia is likely to have a strong year, the IMF said.
Vietnam is expanding from the center of supply chain diversification efforts, while the Philippines, Indonesia, Malaysia and India are likely to grow between 4% and 6%.
Tourism in Cambodia and Thailand will pick up, the IMF added.
So far, exports from the ASEAN-6 — made up of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — have outperformed North Asia and the rest of the region, according to DBS Bank. Higher commodity prices and supply disruptions helped exporters like Indonesia.
“Asia Remains a Relative Bright Spot in an Increasingly Darkening World Economy”: IMF
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Manufacturing PMIs in Indonesia, the Philippines, Thailand and Vietnam “stood broadly in the expansionary zone above 50 in September,” DBS analysts Chua Han Teng and Daisy Sharma said in a note. This puts these countries higher than countries like South Korea and South Korea Taiwan.
Bleak prospects for South Asia
But the prospects for Asian frontier markets like Sri Lanka and Bangladesh remain bleak, the IMF report says.
Sri Lanka is still experiencing a severe economic crisis, while in Bangladesh the war in Ukraine and high commodity prices have dampened recovery from the pandemic, she added.
“Economies with high levels of debt, such as the Maldives, Laos and Papua New Guinea, and those exposed to refinancing risks, such as Mongolia, also face challenges as the tide turns,” the IMF said.
As for China, it would likely rebound this year, posting 3.2% growth in 2022 before accelerating to 4.4% in 2023 – assuming its Covid-zero policy is gradually eased, he said IMF.
However, Fidelity warned that there are still many uncertainties with China. The 20th party congress, which started last weekend, could bring “more political certainty” into the new year, while the Chinese yuan could continue to struggle against a stronger US dollar.