Daily Management Review

According To Economists, Asia Could Emerge As A Shining Light In The Global Downturn Next Year


According To Economists, Asia Could Emerge As A Shining Light In The Global Downturn Next Year
Even though the global economy is expected to enter a recession next year, Asia, particularly Southeast Asia, remains a bright spot, according to economists.
The International Monetary Fund said last week that the strong economic bounceback in Asia previously this year has lost steam due to three "formidable headwinds," namely rising interest rates, the war in Ukraine, and the impact of China's toned down economic activity.
“Despite this, Asia remains a relative bright spot in an increasingly dimming global economy,” the IMF said in its latest outlook report “Asia Sails Into Headwinds From Rate Hikes, War, and China Slowdown.”
The IMF forecasts 4 per cent growth in Asia and the Pacific this year and 4.3 per cent in 2023, both lower than the 5.5percent average over the last two decades.
Nonetheless, they are higher than the fund's forecasts for Europe and the United States. The IMF forecasts 3.1 per cent growth in 2022 and 0.5 per cent growth in 2023 for the eurozone, and 1.6 per cent growth this year and 1% growth next year for the United States.
According to the IMF, China will recover from a sluggish year and post 3.2 per cent growth this year before accelerating to 4.4 per cent next year if its Covid-zero policies are gradually eased.
Overall, Asia's journey will vary from that of many advanced economies, such as Europe, because it will serve as a "useful diversifier that is insulated to some extent from the struggles facing Europe," according to Fidelity Portfolio Manager Taosha Wang in a note last week.
“This implies more headroom for growth-oriented policies in the region, which differs from many other parts of the world where high inflation is forcing central banks to tighten financial conditions,” Wang said.
According to the IMF, Southeast Asia will likely have a strong year ahead.
Vietnam is growing as a result of its position at the center of supply chain diversification efforts, while the Philippines, Indonesia, Malaysia, and India are expected to grow between 4 per cent and 6 per cent.
Tourism in Cambodia and Thailand will improve, according to the IMF.
According to DBS Bank, exports from the ASEAN-6 — Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam — have outperformed those from North Asia and the rest of the region so far. Increased commodity prices and supply disruptions aided exporters like Indonesia.
Manufacturing purchasing managers indexes in Indonesia, the Philippines, Thailand, and Vietnam "generally stood above 50 in September," according to DBS analysts Chua Han Teng and Daisy Sharma in a note.
This places these countries higher than South Korea and Taiwan.
However, the outlook for Asian frontier markets such as Sri Lanka and Bangladesh remains bleak, according to the IMF report.
Sri Lanka is still in the grip of a severe economic crisis, while in Bangladesh, the war in Ukraine and high commodity prices have slowed the country's recovery from the pandemic, according to the report.
“High debt economies such as Maldives, Laos and Papua New Guinea, and those facing refinancing risks, like Mongolia, are also facing challenges as the tide changes,” the IMF said.
According to the IMF, China will likely recover this year and post 3.2 per cent growth in 2022 before accelerating to 4.4% in 2023 if its Covid-zero policies are gradually eased.
However, Fidelity warns that there are still many unknowns in China. For example, the 20th Party Congress, which began this weekend, could "herald more policy certainty" in the coming year, while the Chinese yuan may struggle even more against a strengthening US dollar.