Surge in Chinese retail sales sparks EAP economic uptick

Elsewhere in the EAP, growth slowed around the turn of the year in a number of economies such as Malaysia, Philippines, and Vietnam, as the boost from earlier reopening faded. While consumption growth remained firm, goods trade decelerated before stabilising, reflecting weak global demand and tepid activity in goods-trade intensive sectors in China, according to the Global Economic Prospects report by the World Bank.

Growth in the EAP region is projected to strengthen to 5.5 per cent in 2023, with a recovery in China offsetting moderating growth in several other economies. In 2024 and 2025, growth in the EAP is expected to edge down to 4.6 per cent and 4.5 per cent respectively, as growth in China slows alongside broadly stable growth in the rest of the region. Compared with January projections, growth in the EAP is expected to be 1.2 percentage points higher in 2023 and 0.3 percentage point lower in 2024.

The revisions primarily reflect the earlier-than-expected reopening of China, where growth has been revised up by 1.3 percentage points in 2023 but down by 0.4 percentage point in 2024. In China, growth is projected to rebound to 5.6 per cent in 2023, as the reopening, together with accumulated excess savings, supports household spending, particularly on services. Growth is then projected to moderate to 4.6 per cent in 2024 and 4.4 per cent in 2025, as reopening effects fade. Investment growth is expected to pick up modestly this year, supported by infrastructure-related stimulus and a gradual recovery in the property sector. Inflation is expected to remain below target given economic slack, including in labour markets.

In the EAP, (excluding China), growth is expected to be 4.8 per cent in 2023 as the tailwinds from reopening and pent-up demand fade. Positive spillovers from China’s recovery are expected to be limited given its concentration on domestic services activity. Furthermore, these positive spillovers are likely to be outweighed in some cases by domestic headwinds, particularly elevated inflation and the continued effects of domestic monetary policy tightening.

While both core and headline inflation are expected to ease through 2023, in the near term, headline inflation is likely to remain above central bank targets in some countries, like Mongolia and the Philippines, owing to the delayed pass-through of increases in global commodity prices and domestic supply shocks. Moderating commodity prices will help reduce headline inflation this year, but it will also weaken the terms of trade of commodity exporters, including Indonesia.

The baseline projection for the region is subject to several downside risks, including tighter-than expected domestic and global financial conditions, persistently high inflation, continued weakness in China’s property sector, and a faster-than-anticipated fading of the post-pandemic rebound in China. An intensification of geopolitical tensions presents a further downside risk, as do natural disasters, including extreme weather events related to climate change, which can impose particularly large costs on the small Pacific Island economies.

Fibre2Fashion News Desk (NB)