Asia’s Growth Decelerates Significantly Amid Deteriorating Global Conditions
Regional growth is projected to pick up in 2023 but downside risks from China`s greater than expected slowdown, the weakness of the global economy, and policy shifts in advanced economies pose concern.
East and South-East Asia are set to register growth rates significantly below those observed in the five years prior to the COVID-19 pandemic, according to the UN Conference on Trade and Development (UNCTAD) Trade and Development Report 2022.
But prospects appear to be worsening, with growth expected to decelerate further next year to 2.2%, leaving real GDP below its pre-COVID-19 trend by the end of 2023.
While the Asian region has exhibited relatively dynamic growth rates over the last decade, it’s by no means immune to these deteriorating global conditions.
“The economic slowdown will set back the realization of the 2030 Agenda for Sustainable Development,” said UNCTAD Secretary-General Rebeca Grynspan.
In East Asia, UNCTAD’s baseline scenario envisages an expansion of 3.3% this year, compared to 6.5% growth in 2021.
A confluence of factors – including a significant increase in the prices of the region’s imported commodities, as well as a softening in global demand for the region’s exports and a tightening in international monetary conditions – is weighing on growth throughout the region.
For 2023, UNCTAD expects the region’s growth to pick up moderately to 4.3%.
Growth in East Asia is heavily influenced by that of the Chinese economy. UNCTAD expects a significant deceleration in economic activity in China in 2022, to 3.9%.
Although a moderation of the growth rate was to be expected relative to the dynamic recovery observed in 2021, the imposition of stringent lockdowns has resulted in a sharper deceleration than that initially envisaged, with the risks on the downside.
Uncertainty is weighing on consumer spending, despite a loosening of credit conditions by the authorities, while the property sector is locked in an evolving financial crisis.
Republic of Korea
In the Republic of Korea, growth is expected to slow to 2.2% in 2022. High household debt and increasing inflation are dampening consumption spending. With inflation mostly imported, the impact of monetary tightening on prices will likely be very limited.
UNCTAD expects growth to decelerate further in 2023 to 2%, as weakening external demand affects the export sector; in addition, more restrictive fiscal and monetary policies are expected to inhibit consumption and investment spending.
In the case of South-East Asia, UNCTAD estimates growth of 4.1% in 2022, yet growing inflationary pressures and a subsequent tightening of domestic monetary stances, along with more costly international financing conditions, is dampening activity.
For 2023, UNCTAD expects the region’s growth rate to decelerate to 3.8% in the context of sluggish growth of global trade and the anticipated effects of a tightening in domestic monetary policy, as the region’s historic vulnerability to financial and exchange rate instability weighs on policymakers’ minds.
UNCTAD is the UN’s leading institution dealing with trade and development. It is a permanent intergovernmental body established by the United Nations General Assembly in 1964.
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