Asia’s 2023 growth set to be modest

Photo by Dylan Chan

Atradius has released its 2023 Regional Economic Outlook report, setting out growth forecasts for key economies in Asia, including the outlook for a newly reopened China, and offering a long-term view on the risks of geo-economic fragmentation resulting from ongoing supply chain reconfigurations and geopolitical tensions.

Overall Asia macro-economic outlook:

  • Asian economies are on course for modest growth this year as they try to shake off the negative effects of tighter financial conditions, inflation, a weak global economic environment and geopolitical tensions.
  • Except for China and Thailand, most economies in Asia will likely see lower real GDP growth this year than in 2022. However, as the aforementioned headwinds weaken over the coming months and the impact of China’s reopening cascades through the region, the recovery is expected to pick up momentum in 2024.

Major Asian economies’ performance: a mixed bag

  • For China, weak export demand from developed economies and a struggling real estate sector will counterbalance the benefits of reopening and supportive fiscal and monetary policies — capping growth at no higher than 4.5% this year compared to 3% in 2022. Over the long run, structural issues such as an ageing population, low productivity growth, human capital mismatch, supply chain shifts and geopolitical rivalry may limit China’s growth, risking a middle-income trap.
  • India is set to be the fastest-growing economy in Asia this year and next, expanding at 4.8% and 6.8%, respectively. The country’s relatively strong performance is underpinned by a less severe surge in inflation, a strong domestic economy that is offsetting decline in external demand, and improving overall business environment, which is attracting international investments.
  • In Japan and South Korea – growth will be muted this year at 0.7% and 0.8%, respectively – as high inflation dents their recovery. High household debt in South Korea has kept a lid on consumer spending after recent rate hikes. Meanwhile, pent-up demand in Japan will partly compensate for inflation, supporting the recovery in domestic consumption to continue but at a slower rate than last year.

ASEAN-5 more resilient than ever:

  • With their increasingly robust economies and financial systems, the five largest emerging markets in Southeast Asia known as ASEAN-5 have remained resilient against recent external shocks, making them more likely to benefit from the global supply chain diversification trend.
  • The Philippines is poised to grow the fastest at 4.1%, followed by Thailand (4%) and Vietnam (4%). Thailand’s resurgence as a preferred holiday destination will boost tourism revenues and push growth to 4% compared to 2.6% in 2022. Indonesia will be a laggard, growing at 3.6% before seeing a surge in growth to 5.5% in 2024, as private investments benefit from a new law.

Emerging risk of geo-economic fragmentation:

  • While the diversification of supply chains, triggered by the Covid-19 pandemic and geopolitical tensions between the US and China, has benefited countries like India, Vietnam, Malaysia and Thailand, a broadening of this trend may risk a sharp geo-economic fragmentation of financial and trade flows.
  • Russia’s invasion of Ukraine and ensuing sanctions on the country have already led to increased uncertainty around future trade relations. The potential consequences of a fragmentation scenario – reduced investments, jobs and growth – are expected to result in large economic losses for Asia due to its central role in global manufacturing.