Global economy, policy shifts result in Asia's growth slowdown: UNCTAD

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. 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 United Nations Conference on Trade and Development's (UNCTAD) Trade and Development Report 2022.

The world economy is expected to grow 2.6 per cent in 2022. This is 0.9 percentage points below the rate projected in last year’s report and broadly in line with its March update.

“The economic slowdown will set back the realisation of the 2030 Agenda for Sustainable Development,” UNCTAD Secretary-General Rebeca Grynspan said in a press release by UNCTAD.

In East Asia, UNCTAD’s baseline scenario envisages an expansion of 3.3 per cent this year, compared to 6.5 per cent 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 per cent.

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 per cent.

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.

In the Republic of Korea, growth is expected to slow to 2.2 per cent 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 per cent, 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 per cent 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 per cent 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.

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