The Asean + 3 Macroeconomic Review Office (AMRO) has moderated its 2022 growth forecast for the Asean + 3 nations to 4.7%, from its previous 4.9% estimate.
The macroeconomic watchdog – which monitors the economies of Asean, Japan, China and Korea – has also penciled for the region to grow by 4.6% in 2023.
This will be led by strong performance by the Asean nations which are expected to grow by 5.1% in 2022 and 5.2% in 2023. The exception to the group is Singapore, which is predicted to see a moderation in its growth to 4.0% in 2022, following a strong rebound in 2021.
The growth outlook is underpinned by the high vaccination rates in the region, which are believed to mitigate the health risks of the coronavirus.
“As we move through 2022, it appears as though the region may finally have gained some ground in its losing battle against the virus, and we can now look forward to a fuller opening-up and a strong economic recovery,” AMRO’s chief economist Khor Hoe Ee noted in a briefing on Apr 12.
However, he cautions that the ongoing Russia-Ukraine conflict poses a risk to the Asean + 3 nations, even as its impact to the region’s GDP (Gross Domestic Product) growth is said to be limited in 2022.
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Already, the war has triggered higher energy prices as well as disrupted global supply chains, higher global inflation levels and lower global growth. The combination of these, would undoubtedly hurt exports and inevitably the growth of the Asean + 3 nations, AMRO’s report points out.
If all goes well, AMRO projects that the Asean + 3 region’s GDP growth could come in a 5.4% in 2022, and 5.7% next year. This is based on the assumption that the Russia-Ukraine conflict will be resolved in the first half of this year and all the Covid-19-related measures are removed by the end of the year.
In a more extreme scenario, the Asean +3 region’s GDP growth is expected to be 3.9% this year and 3.5% in 2023. This assumes that the tensions between Russia and Ukraine could last beyond 2023 and that more virulent strains of the coronavirus could emerge by the end of this year.
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Meanwhile, Asean + 3 nations – along with several countries globally – are now confronted with a major challenge: soaring inflation levels.
The sharp rise in inflation in the United States has prompted the Federal Reserve (Fed) to begin tightening monetary policy. A sharper-than-expected rate hike by the Fed and a resultant tightening in global financial markets would impact interest rates, capital outflows and financial market volatility in the region, AMRO’s report highlights.
Headline inflation in the region is expected to increase to 3.5% this year, following base year effects, the removal of subsidies on energy and some essential products, and supply-side constraints that have been pushing up the costs of raw materials, energy, transportation and food.
Inflation levels in the Asean + 3 region is expected to moderate to 2.3% next year. In Asean, the inflation level is forecast to be 4.1% this year and 2.6% next year.
In view of the less supportive global policy settings in 2022, policymakers in the region will now how to play a balancing act. This involves avoiding a premature withdrawal of policy support to sustain the recovery, while also facilitating the reallocation of capital and labour to new and expanding sectors, and restoring policy space to prepare for future risks, noted Khor.
"Asean+3 policymakers will have to be nimble as they navigate this complex environment, strengthen economic recovery and rebuild policy space," he stressed.
Cover image: Bloomberg
