Last Updated on: 16th July 2023, 01:00 am
What’s Next For Asia’s Emerging Markets in 2023?
Many economies in the region could face a bumpy ride next year, but some could also benefit as companies diversify their investments in the Chinese market.
The economies of South and Southeast Asia had a difficult 2022, a year in which the global economy was expected to recover from the negative impact of the COVID-19 pandemic.
Instead, the Russian invasion of Ukraine, coupled with ongoing supply chain problems, recurring COVID lockdowns in China, and skyrocketing inflation, among other issues, have dampened growth prospects and caused economic difficulties for firms and businesses.
Aggressive rate hikes by the US Federal Reserve to curb skyrocketing inflation also caused several Asian currencies to depreciate against the US dollar.
This has exacerbated some countries’ debt problems, eroding their purchasing power and prompting their central banks to raise interest rates accordingly to support their currencies.
Trade-Driven ASIAN Economies Face Headwinds
The rising cost of importing food and fuel, among other commodities, has depleted some countries’ foreign exchange reserves and triggered economic crises.
In South Asia, Sri Lanka and Pakistan have already received help from the International Monetary Fund after suffering from debt and balance of payments difficulties.
Experts forecast a challenging economic environment in 2023 given weaker growth prospects in the United States, the eurozone, and China and tightening financing conditions.
The World Bank, the IMF, and the Asian Development Bank have revised downward growth forecasts for developing countries in Asia. Trade-oriented economies such as Singapore, Thailand, Vietnam, and Malaysia are forecast to be particularly affected by the slowdown in global expansion.
Alicia Garcia-Herrero, the chief economist for Asia-Pacific at the investment bank Natixis, said growth in the region was being held back by weaker external demand and tighter monetary conditions.
“As foreign demand weakens, exports will start to weaken and we expect further weakness in the coming year,” he said, noting that trade-oriented economies such as Malaysia and Vietnam had already shrunk in November.
Rajiv Biswas, chief economist for Asia-Pacific at S&P Global Market Intelligence, shares a similar view. He said that the Association of Southeast Asian Nations’ manufacturing exports faces increasing headwinds in 2023 amid recession in the US and EU and weak domestic demand in China.
“ASEAN economies like Malaysia, Singapore, and Thailand are expected to show subdued economic growth in 2023, supported by sustained, albeit subdued, expansion in domestic demand,” he told DW.
Will Lifting COVID Restrictions Boost China?
China, the region’s largest economy, is expected to grow slowly in 2023 as well, and the AfDB recently lowered its forecast for the country to 4.3% from 4.5%.
The Asian giant’s economy has been hit hard by tough coronavirus restrictions, as well as a crisis in its massive real estate sector, with developers defaulting on loans and struggling to raise funds after Beijing imposed sweeping lending restrictions in 2020.
Beijing has tried to boost growth by lowering interest rates and injecting liquidity into the banking system.
In addition, China abruptly abandoned its zero-COVID policy this month after years of lockdowns and lockdowns, mass testing, extended quarantines, and restrictions on the movement of people.
Though some restrictions remain in place, there is hope that domestic demand in the world’s second-largest economy will pick up as China lifts strict lockdown measures.
It is also said to help some tourism-dependent Southeast Asian countries like Thailand.
“ASEAN tourist arrivals are still shy compared to pre-COVID due to the lack of Chinese tourists,” Garcia-Herrero said. “Although we would not expect Chinese tourists to return to ASEAN as often as they did before COVID, one would expect there to be a boost as China opens up.”
Also Read: Forbes Recognizes Strong Economic Condition of Pakistan in COVID-19