The Asian Development Bank (ADB) announced on Tuesday that developing Asia is expected to experience accelerated growth in 2023, primarily driven by a stronger-than-anticipated economic rebound in China. However, the ADB cautioned that the outlook could be impacted by potential risks arising from global banking instability.
In its Asian Development Outlook report, the ADB projected that developing Asia, which encompasses 46 economies within the Asia-Pacific region, would achieve 4.8% growth in 2023. This figure exceeds the previous estimate of 4.6% from December and follows a 4.2% growth in 2022.
China's economic recovery has been fueled by the conclusion of its zero-COVID policy in December. The ADB now predicts that the world's second-largest economy will expand by 5.0% this year, surpassing the earlier forecast of 4.3%. ADB Chief Economist Albert Park commented on the situation, stating, "China's reopening is really going to create the strongest kind of support for growth in the region this year."
Park noted that China's beleaguered property sector remains a concern, but he believes the upside risks to China's growth outlook outweigh the downside risks. "If life really returns to normal quickly and confidence comes back, growth could even be higher than 5%, which would be obviously even better for the region," Park added.
Excluding China, the region is projected to experience 4.6% growth in 2023, down from the previous year's 5.4%. Among the subregions, South Asia is anticipated to see the most rapid expansion at 5.5%, boosted by India's projected 6.4% growth. Southeast Asia follows with an expected 4.7% growth.
The ADB emphasized that challenges persist, such as global banking sector turbulence and the escalating conflict in Ukraine, which could lead to a spike in commodity prices. However, Park believes that the current turmoil in the global banking sector, spurred by the collapse of two mid-sized U.S. lenders, will not result in "a bigger crisis of the financial system in the U.S." Nonetheless, he advised policymakers to remain vigilant.
The region's growth may also benefit from the anticipated easing of inflation, which could reduce the necessity for frequent and substantial interest rate increases that might otherwise dampen consumption. The ADB forecasts inflation to slow from 4.4% in 2022 to 4.2% this year and 3.3% next year, although it warns that core inflation remains high in some economies and requires close monitoring.
Park also mentioned the unexpected announcement by OPEC+ to reduce production as another challenge for the region, as it could lead to higher oil prices. The ADB currently projects oil prices to average $88 per barrel in 2023 and $90 per barrel in 2024.
