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Asia’s strong economic rebound early this year is losing momentum, with a weaker-than-expected second quarter said IMF in its latest press release, cutting growth forecasts for Asia and the Pacific to 4 percent this year and 4.3 percent next year.
New estimates are well below the 5.5 percent average over the last two decades, but Asia remains a relative bright spot in an increasingly dimming global economy.
Cambodia and Thailand will expand faster in 2023
The Thai economy is projected to continue its post-pandemic recovery with expansion of 2.8% this year and 3.7% in 2023. Although the forecast remains unchanged for this year, growth estimate is now down 0,3% for 2023, in comparison to 4% predicted in July by the IMF.
Vietnam remains the growth champion of the region with a 7% forecast for 2022 and 6.2% next year.
Cambodia and Thailand will expand faster in 2023 on a likely pickup in foreign tourism. In Myanmar, which has endured a deep recession due to the coup and pandemic, growth this year is expected to stabilize at a low level amid continued unrest and suffering.
Inflation remains elevated
Inflation now exceeds central bank targets in most Asian economies, driven by a mix of global food and energy prices, currencies falling against the US dollar, and shrinking output gaps. Core inflation, which excludes volatile food and energy prices, has also risen and its persistence—driven by inflation expectations and wages—must be closely monitored.
Public debt has risen substantially in Asia over the past 15 years—particularly in the advanced economies and China—and rose further during the pandemic. Fiscal policy should continue its gradual consolidation to moderate demand alongside monetary policy, focused on the medium-term goal of stabilizing public debt.
Thailand plans to sell 130 billion baht ($3.41 billion) of government savings bonds in the current fiscal year starting in October to help finance the country’s budget deficit, a finance ministry official said according to a Reuters report.
Waning momentum reflects three formidable headwinds, which may prove to be persistent:
- A sharp tightening of financial conditions, which is raising government borrowing costs and is likely to become even more constricting, as central banks in major advanced economies continue to raise interest rates to tame the fastest inflation in decades. Rapidly depreciating currencies could further complicate policy challenges.
- Russia’s invasion of Ukraine, which is still raging and continues to trigger a sharp slowdown of economic activity in Europe that will further reduce external demand for Asian exports.
- China’s strict zero-COVID policy and the related lockdowns, which, coupled with a deepening turmoil in the real estate sector, has led to an uncharacteristic and sharp slowdown in growth, that in turn is weakening momentum in connected economies.