Elsewhere in Southeast Asia, the picture was cautiously positive as the region’s economies finally emerged from their pandemic-induced slump.
According to the World Bank, Vietnam is expected to become Asia’s fastest growing economy this year, amid a regional downturn largely led by China’s sharp economic slowdown.
In its most recent East Asia-Pacific Economic Outlook report, released yesterday, the World Bank predicted that these regions will grow by 3.2 percent in 2022, from 7.2 percent in 2021, before accelerating to 4. 6 percent by 2023.
The projected growth rate for this year marked a significant drop from the 5 percent forecast by the World Bank for the year in its latest outlook report in April.
Much of this can be attributed to the economic slowdown in China, which previously led to the region’s recovery from the COVID-19 pandemic, before the near-self-defeating strict “zero COVID” policy slowed its economy. In its outlook, the World Bank predicted that the Chinese economy will grow by 2.8 percent this year and 4.5 percent in 2023, a “sharp slowdown” from the 8.1 percent it recorded in 2021. In its latest forecast, published in April, the Bank had predicted that China would grow by 5 percent by 2022.
Excluding China, forecasted growth for East Asia and the Pacific has actually risen to 5.3 percent, from 4.8 percent in the April outlook. This represents more than a doubling of the region’s 2.6 percent growth rate for 2021, and a sign that while the COVID-19 pandemic has not yet come to an end, its economic impact has largely eased.
Perhaps the biggest story was Vietnam’s emergence as the fastest growing economy in East or Southeast Asia. Given the combination of relatively effective COVID-19 containment measures, demographic benefits and a privileged place in the fabric of the regional and global economy, the World Bank estimated that Vietnam’s economy will grow by 7.2 percent by 2022, an increase from from its projection of 5.3 percent in April 7.2. It then expects it to grow an additional 6.7 percent by 2023. Of the Southeast Asian countries, only the Philippines (6.5 percent), Malaysia (6.4 percent) and Indonesia (5.1 percent) are expected to exceed 5 percent this year.
Elsewhere in the region, the picture was cautiously positive. The World Bank raised its economic forecast for Malaysia from 5.5 to 6.4 percent, and made similar upward revisions for the Philippines (5.7 to 6.5 percent), Thailand (2.9 to 3.1 percent) and Cambodia. (4.5 to 4.8 percent).
In a press release ahead of the full report, the World Bank attributes this relatively strong growth to three factors: the recovery in private consumption in the first half of 2022, “enabled by an easing of COVID-related restrictions”; the ongoing global demand for exports of manufactured goods and raw materials from East Asia and the Pacific; and the limited tightening of fiscal and monetary policy so far, although it noted that “the pressure to tighten may increase in the coming months”.
But the Bank also noted some headwinds the region is facing, which has exploded from COVID-19 in the heat of the economic slowdown due to rising inflation and the ongoing war in Ukraine. “The global economic slowdown is beginning to dampen demand for exports of raw materials and manufactured goods from the region,” the report said.
It also noted the impact of inflation and interest rate hikes initiated by central banks in the developed world, especially the US Federal Reserve, to tame it. This tighter monetary policy, in turn, has “caused capital outflows and currency depreciations in some East Asian and Pacific countries. These developments have increased the burden of paying off debt and contracted fiscal space, hurting countries that have entered the pandemic with highly indebtedness.”
The Southeast Asian example of this is Laos, which is currently in the midst of a severe debt crisis after years of heavy borrowing from China, and saw its 2022 growth projected to decline from 3.8 percent to 2.5 percent.
Another outlier is conflict-torn Myanmar, which the World Bank predicted would “enjoy” a 3 percent recovery by 2022, compared to the 1 percent estimated in April. But after contracting a barely credible 18 percent in 2021, this is far from an indication of positive economic development. The uncertainty over Myanmar’s political and economic situation is so great that the Bank declined to provide a forecast for the economy in 2023.
By Sebastian Strangio, Southeast Asia editor at The Diplomat.
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