Asian economic growth is projected to decelerate to 4.2% this year, 0.7 percentage points less than IMF’s April outlook and slower than the 6.5% growth in 2021. According to an IMF report, Asian economic growth in 2023 lessened to 4.6%, down by 0.5 percentage points.
Supply & demand of global value chains have been squeezed. As a result, the production and supply of many products were interrupted, and developed countries are paying more attention to the security of the global supply chain.
Developed countries are beginning to strengthen the formation of domestic production capacity, and manufacturing supply chains tend to shrink and shorten to meet the needs of national strategic security. But, is this attempt to lessen dependence on global value chains a realistic objective?
Asia’s largest economy witnessed a significant deceleration in the second quarter of 2022 as the COVID-zero policy prompted lockdowns for major cities and supply-chain hubs. These policies resulted in a bottle-neck effect for manufacturing; among the main drivers for the growth of the Chinese economy. The deep integration of the digital economy and manufacturing industry can promote the development of advanced manufacturing clusters and generate forms of business and industries.
The full-year IMF growth forecast lowered to 3.3% from 4.4% in April, and is expected to grow by 4.6% next year, marking a reduction of 0.5 percentage points when compared to the previous outlook.
Pandemic lockdowns, geopolitical tensions, and the struggling real estate sector are contributing to a slowdown in investment, industrial production and retail sales. This will inevitably have an impact on other economies due to China’s large role in trade, and in-turn the dependence of global economies on its manufacturing capacities.
The United Nations Conference on Trade and Development (UNCTAD) expects India’s economy to grow 5.7% in 2022 and 4.7% in 2023. India’s gross domestic product (GDP) grew 8.7% in 2022.
Morgan Stanley’s Chief Equity Strategist for India said: “We believe India is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 and will have the third-largest stock market by the end of this decade. Consequently, India is gaining power in the world, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies.”
Conclusively, India’s GDP could more than double from $3.5 trillion today to surpass $7.5 trillion by 2031. Its share of global exports could also double over that period, while the Bombay Stock Exchange could deliver 11% annual growth.
South East Asia & The Republic of Korea
In the Republic of Korea, growth is expected to slow to 2.2% in 2022. High household debt and increasing inflation are dampening consumption spending. With inflation mostly brought about by foreign markets, the impact of monetary tightening on prices will likely be very limited.
UNCTAD expects Korean economic growth to decelerate further in 2023 to 2%, as weakening external global and regional demand affects the export sector. In addition, more restrictive fiscal and monetary policies may impede consumption and investment.
For 2023, UNCTAD expects the south-east Asian region’s growth rate to decelerate to 3.8% in the context of sluggish growth of global trade and the anticipated effects of a tightening in domestic monetary policy, as the region’s vulnerability to financial and exchange rate instability weighs on policymakers’ minds.
The Malaysian economy is expected to expand by between 4.0% to 5.0% in 2023. Bank Negara Malaysia Governor Tan Sri Nor Shamsiah explained, “The Malaysian economy will continue to be supported by firm domestic demand ... Growth would also benefit from the realization of large infrastructure projects as well as higher tourist arrivals”.
However, Shamsiah also pointed out that Malaysia’s growth “remains susceptible to a weakening global growth, higher risk aversion in global financial markets, further escalation of geopolitical conflicts and re-emergence of supply chain disruptions.” The IMF slashed its year-on-year global economic outlook to 5.1% in 2022 amid rising geopolitical tensions.
Currently the world’s third largest economy, Japan’s economic growth unexpectedly shrank in the three-month period from July to September, as a weak yen and high inflation eroded Japanese consumers’ buying power and businesses’ strength.
The economy contracted at an annualized rate of 1.2% during the third quarter, government data showed, ending nine months of growth and setting back the country’s recovery just as it was adjusting to life with looser coronavirus restrictions.
Singapore’s largest industry by far is the manufacturing sector, contributing to nearly a quarter of the country’s annual GDP. Key industry clusters in Singapore’s manufacturing include electronics, chemicals, biomedical sciences, and logistics, all of which have seen a significant effect in terms of demand & supply due to the current global environment.
Unprecedented conditions pushed economic analysts like Fitch Solutions to revise their 2022 real GDP growth forecast for Singapore to 4.0% from the previously expected 3.5%. This was after advance estimates showed that the economy expanded by a stronger than expected 4.4% year-on-year in Q3, resulting in a cumulative growth of 4.3% year-on-year in the first nine months of the annum.
Oil in the GCC & The Qatar 2022 World Cup
The GCC plays a major role in the global energy market. A report by the World Bank presents the latest economic developments in the GCC focusing on the post-pandemic recovery, the vaccine roll-out and the implications of a more favorable oil market.
Given continued volatility in the oil market and the need to diversify GCC economies, the largest GCC economy, Saudi Arabia, is expected to grow by 8.3% in 2022 according to a World Bank forecast. The kingdom’s oil sector is the key driver of this economic growth with the output estimated to grow by 15.5% in 2023, while the non-oil sector is also expected to continue its growth trajectory estimated at 4.3% this year.
Another major player of the GCC economy is Qatar. According to the World Bank, Qatar’s GDP is projected to grow by 4.9% by the end 2022, followed by 4.5% and 4.4% in 2023 and 2024 respectively. The nation will focus on tourism post the World Cup. Almost $10 billion was spent on preparations, and Qatar will continue to reap economic benefits of this major event.
On the Precipice of New Global Powers?
Higher trade policy uncertainty and an unravelling of global supply chains, which contribute to the trend towards geoeconomic fragmentation, is expected to delay the Asian economic recovery and exacerbate the detrimental scarring from the pandemic in Asia; one of the biggest beneficiaries of decades of deepening global trade and financial integration.
While growth is generally weakening, Asian inflation pressures are rising, driven by a global surge in food & fuel costs resulting from geopolitical tensions and related sanctions.
The midterm outlooks may seem cynical, but in the long-term Asia’s economy is looking more optimistic relative to the rest of the global environment. The next superpower may stem from within this region, characterized by the abundance of its ever-developing potential.
Written by ARIFF AZRAEI BIN MOHAMMED KAMAL, Market Research Analyst of GoldenBrokers