ADB: Asia’s Economic Outlook Dims as Trade and Investment Weaken

Developing Asia will barely grow in 2020 as containment measures to address the COVID-19 pandemic hamper economic activity and weaken external demand, according to a new set of forecasts from the Asian Development Bank - Photo by ADB

JAKARTA (TheInsiderStories) – Economic growth in developing Asia remains robust but prospects have further dimmed and risks to the region’ economies are rising as trade and investment weaken, according to Asian Development Bank’ (ADB) latest report. The agency forecasts economic growth in the 45 countries of developing Asia at 5.4 percent this year, before nudging up to 5.5 percent in 2020.

The newly lowered forecasts reflect gloomier prospects for international trade due in part to escalating trade tensions between the China and the United States (US), as well as slowing economic growth in advanced economies and the large economies of developing Asia, including the PRC, India, the Republic of Korea, and Thailand.

Excluding the newly industrialized economies of Hong Kong, China, South Korea, Singapore, and Taipei, developing Asia is forecast to expand by 6.0 percent this year and next year.

“The China – US trade conflict could well persist into 2020, while major global economies may struggle even more than we currently anticipate,” said ADB Chief Economist Mr. Yasuyuki Sawada.

He adds, “In Asia, weakening trade momentum and declining investment are the major concernsThese are all issues that policymakers must monitor closely.”

The prospects for growth vary across the subregions of developing Asia. The slowdown in global trade coupled with a sharp downswing in the electronics cycle has pulled down forecasts for the PRC and the more open economies in East and Southeast Asia.

ADB forecasts Chinese economy to expand 6.2 percent in this year and 6.0 percent next year. East Asia as a whole is expected to grow 5.5 percent in 2019 and 5.4 percent in 2020, while Southeast Asia is seen expanding 4.5 percent and 4.7 percent, respectively.

Weaker investment prior to the April–May general elections as well as tighter credit is weighing on India’ growth outlook this year, with gross domestic product (GDP) now expected to expand 6.5 percent in 2019 before ticking up to 7.2 percent growth in 2020. South Asia as a whole is seen growing 6.2 percent and 6.7 percent in 2019 and 2020, respectively.

With public spending stimulating the economies of Kazakhstan and Uzbekistan, Central Asia’ economic growth is forecast at 4.4 percent this year and 4.3 percent next year. Meanwhile, Papua New Guinea’ recovery from an earthquake is helping to boost growth in the Pacific subregion to 4.2 percent this year before moderating to 2.6 percent next year.

The report notes that an escalation and broadening of the China – US trade conflict may reshape supply chains in the region. There is already evidence of trade redirection from the PRC toward other economies in developing Asia such as Viet Nam and Bangladesh. Foreign direct investment is following a similar pattern.

Public and private debt has risen in developing Asia since the 2008 – 2009 global financial crisis with debt-to-GDP expanding around two-thirds over the last two decades. The report notes that rapid debt buildup can be a danger to financial stability and urges policymakers to remain vigilant.

Inflation has ticked up largely due to rising food prices in the region, including in the China as African swine flu has pushed up meat prices. The report predicts headline regional inflation of 2.7 percent in both 2019 and 2020.

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