BANGKOK (`) – China’s recovery from the pandemic and strong demand in India will drive strong economic growth in Asia this year, the Asian Development Bank said in a report released on Tuesday.
The latest update from Manila, Philippines-based ADB forecasts growth of 4.8% this year and next, up from 4.2% in 2022. Inflation is likely to cool slightly this year and fall further in 2024.
ADB economists said a decision by oil-producing nations over the weekend to cut output and spike oil prices could reignite inflationary pressures and pose further challenges to the region.
The report’s analysis was based on the assumption that Brent crude, the price basis for international trade, would average $88 a barrel this year and $90 a barrel next year.
Oil prices remain below these levels with Brent trading at $83 on Monday. But they rose about 5% after Saudi Arabia and other big oil producers announced they would cut production by 1.15 million barrels a day from May through the end of the year, on top of a cut announced last October that the Biden -government angry.
“It’s certainly plausible that oil prices could go even higher and pose another challenge for the region,” ADB chief economist Albert Park said in a conference call.
However, rising imports of Russian crude, particularly from China and India, are likely to cushion the impact of rising prices – such exports to China, India and Turkey have more than doubled in the past year. As of February, a third of Russia’s crude oil exports went to India and more than a fifth to China.
Park pointed out that inflation in Asia seems to be driven more by rising demand for services like tourism than for goods.
Another factor that could push prices higher is China’s recovery from slow growth after its leaders lifted COVID-19 restrictions that disrupted travel, manufacturing and other business activities. The ADB forecasts China’s economy to grow 5% this year and 4.5% next year, an improvement on last year’s 3% growth but slower than the long-term average.
India’s economy, meanwhile, is expected to grow at a slower pace this year at 6.4%. That follows an annual pace of expansion of 9.1% in 2021 as it recovered from the worst of the pandemic and 6.8% last year. But it’s one of the fastest expansions for a large regional economy.
Vietnam, on the other hand, is expected to register growth of 6.5% this year compared to 8% last year. That’s above the average forecast for Southeast Asia, at 4.7% in 2023 and 5% next year.
A drop in demand for computer chips has hurt prospects for big exporters like Taiwan, Singapore and South Korea, the regional development lender said in its report.
It cited a forecast by World Semiconductor Trade Statistics that semiconductor sales will fall 4.1% this year from a year earlier, but demand is likely to rebound later this year, typical of the highly cyclical industry.
Recent concerns about the stability of the banking sector following bank failures in the US and Switzerland’s rescue of Credit Suisse through a partial takeover by its rival UBS are among other uncertainties facing the global and regional economy, the report said . The war in Ukraine could also push up the prices of commodities such as oil, gas and wheat and further hamper the central bank’s efforts to contain inflation.
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