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Economies

Asian Economies – research, data, news

Asia-Pacific is the main economic growth engine for the global economy. Read more about the economies in the region.

In its October edition of the World Economic Outlook, the International Monetary Fund (IMF) reiterated its Asia economy outlook for 2023 at 4.6%. The region reported an economic growth of 3.9% in 2022.

Growth in the Asia Pacific region is projected to rise from 3.9% in 2022 to 4.6% in 2023, unchanged from the April projection. The growth is led by the recovery following China’s post-pandemic-reopening and better-than-expected growth in the first half of 2023 in Japan and India. The IMF particularly highlights the strength of the service sector in these economies.

However, the global lender has lowered its growth projections for Asia Pacific to 4.2% for 2024 from the 4.4% in April amid indications of slowing growth momentum and investment in the third quarter. This reflects weaker external demand especially in Southeast Asia and Japan as well as dwindling real estate investment in China.

Moreover, as the US economy has begun focusing on the service sector, instead of goods, Asia is unable to witness greater demand. The IMF also explained, “…US policies such as the Inflation Reduction Act and CHIPS and Science Act are re-orienting demand toward domestic sources rather than foreign, providing a smaller boost to imports from Asia.”

One of the main reasons for the lowered growth projection for Asia Pacific is the downgrade of China’s outlook. The IMF has downgraded China’s growth projections to 5% for 2023 and 4.2% for 2024, due to the worsening real-estate sector slump.

Due to the growing headwinds from its real estate crisis and weakening confidence, China is also an exception to the other emerging market economies that showed resilience. Among emerging markets and developing economies, China has a particularly large consumption shortfall that reflects tight restrictions on mobility during the Covid-19 crisis.

In terms of risks, the IMF cautions that the real estate crisis could deepen further in China and emerge as a high risk for the global economy. “If real estate prices decline too rapidly, the balance sheets of banks and households will worsen, with the potential for serious financial amplification. If real estate prices are artificially propped up, balance sheets will be protected for a while, but this may crowd out other investment opportunities, reduce new construction activity, and have an adverse impact on local government revenues through reduced land sales. Either way, China’s economy needs to pivot away from a credit-driven real estate model of growth,” opines the IMF.

Yan Carrière-Swallow, Deputy Division Chief in the IMF’s Asia and Pacific department cautioned that in the near term, a sharp adjustment in China’s debt-laden property sector and the following economic slowdown is likely to impact Asia at large, particularly the commodity exporters closely associated to China.

On the other hand, the IMF upgraded India’s growth outlook for 2023 (based on fiscal year April 2022 to March 2023) by 0.2 percentage points to 6.3%, while the 2024 outlook stays at 6.3%. Based on the calendar year, India’s growth projections are 6.5% in 2023 and 5.7% in 2024.

As for the ASEAN 5 consisting of Indonesia, Malaysia, the Philippines, Singapore, and Thailand, IMF lowered its 2023 growth forecast by 0.4 percentage points to 4.2% from its July forecast, while it maintained its 2024 growth projection at 4.5%.

Japan’s economy is improving, as per the IMF’s Asia economy outlook. The institution raised its growth projection from July 2023 by 0.2 percentage points to 2%, while its 2024 growth outlook remains the same at 1%.

IMF World Economic Outlook, October 2023
IMF World Economic Outlook, October 2023, selected Asian countries.IMF World Economic Outlook, October 2023

As for the positive development in Asia, Krishna Srinivasan, the Director of the Asia and Pacific Department at IMF highlighted that the region is likely to see disinflation at a faster rate. Srinivasan also mentioned that Asia’s inflation rose at a lesser pace than most other economies and would possibly return to the central bank’s target sooner. “Countries with inflation still above targets, such as Australia, New Zealand, and the Philippines, should continue to signal a commitment to reducing inflation,” added Srinivasan.

According to the IMF, consolidating multilateral and regional cooperation and lowering the impact of geoeconomic fragmentation is critical for Asia’s economy outlook in coming years.

“Reforms that lower nontariff trade barriers, boost connectivity, and improve business environments are essential to attract more foreign and domestic investment across the region,” affirms Swallow.

Global economy is “limping along”

According to IMF’s projections, world economic growth will slow from 3.5% in 2022 to 3% this year and 2.9% next year, a 0.1% point downgrade for 2024 from July 2023. The downgrade comes as the global economy continues to recover slowly from the pandemic, the Russia-Ukraine war, and the cost-of-living crisis.

Overall, the IMF said that its medium-term outlook for the next five years is dimming especially for emerging markets and developing economies. “With lower growth, higher interest rates and reduced fiscal space, structural reforms become key,” says Pierre-Olivier Gourinchas, Director of Research of the IMF, in the foreword to the report. “Yet growth remains slow and uneven, with growing global divergences. The global economy is limping along, not sprinting.”

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