East & South Asian economies face slowdown amid global challenges

The UN's flagship economic report paints a bleak outlook for the global economy in the near term. Factors such as persistently high interest rates, escalating conflicts, sluggish international trade, and increasing climate disasters are identified as major impediments to global growth.

For East Asian economies, a moderate slowdown is anticipated, with GDP growth expected to dip from 4.9 per cent in 2023 to 4.6 per cent in 2024. Despite this, private consumption growth is forecast to remain steady, bolstered by diminishing inflationary pressures and a continuous recovery in the labour market, as per the report.

China, in particular, faces significant economic challenges. After a rebound to 5.3 per cent GDP growth in 2023, softer external demand and ongoing trade tensions are likely to reduce growth to 4.7 per cent in 2024. The Chinese government is actively implementing policies to stimulate growth, including reducing policy and mortgage rates and bolstering public sector investments.

In South Asia, the economic outlook remains relatively robust, with a forecasted growth of 5.2 per cent in 2024, marginally lower than the 5.3 per cent in 2023. India is set to lead this growth, projected at 6.2 per cent in 2024, driven by strong domestic demand and a thriving manufacturing sector.

However, the region is not without its challenges. Tight financial conditions, fiscal and external imbalances, and geopolitical tensions, particularly the ongoing war in Ukraine and conflicts in Western Asia, pose risks, especially to net-oil-importing countries vulnerable to oil price spikes.

Inflation trends show divergence in the two regions. East Asia is expected to see a modest rise in inflation to 1.9 per cent in 2024 from 1.2 per cent in 2023, whereas South Asia is projected to experience a decline in inflation to 9.2 per cent in 2024 from 13.4 per cent in 2023.

The report also underscores various risks, including the possibility of prolonged high interest rates in developed countries, which could exacerbate debt distress and balance-of-payments crises in some South Asian economies. Additionally, more frequent and intense climate disasters could amplify economic damages, disproportionately affecting vulnerable populations.

Central banks in East and South Asia have adjusted their monetary policies in response to these challenges. Most have slowed or halted interest rate hikes in 2023, with some even implementing rate cuts to foster growth. Nonetheless, monetary authorities are expected to remain vigilant in 2024, balancing inflation management, growth revival, and financial stability.

Fiscal strategies in these regions are also under scrutiny. The report suggests the need for revenue-enhancing reforms, including tax base expansion and improved tax compliance. On the expenditure front, a shift towards protecting vulnerable groups and investing in physical and human capital is recommended, emphasising economic infrastructure, digitalisation, and social protection systems. For countries at risk of debt distress, credible medium-term national fiscal frameworks are essential to ensure debt sustainability.

Fibre2Fashion News Desk (DP)