ADB cuts Asia GDP forecast as China sticks to Covid Zero

The Asian Development Bank (ADB) cut its forecast for gross domestic product growth in developing Asia this year as China’s Covid Zero approach to containing the virus creates ripple effects on regional supply chains and economic development.

The bank expects the region to grow 4.6% this year compared to an earlier forecast of 5.2%, according to a report published Thursday.

Growth in China, a key part of the developing Asia bloc, is expected to be a weaker 4% in 2022 against a 5% expansion seen previously.

The bank also slashed the forecast for East Asia — a region that includes China, Hong Kong, Taiwan and South Korea — to 3.8% from 4.7%.

“Risks to developing Asia’s economic outlook remain elevated and mainly associated with external factors,” the ADB said, citing a substantial slowdown in global growth, the U.S. Federal Reserve’s aggressive tightening, and surge in commodity prices.

For 2023, the region is forecast to grow 5.2%, down slightly from its earlier forecast of 5.3%, the ADB said.

“From within the region, downside risks could arise from the potentially lingering effects on supply chains from (China’s) latest round of lockdowns and the country’s growth slowdown, which could hinder developing Asia’s growth momentum,” the multilateral lending organisation said.

China’s economy will likely expand 4.0% this year, the ADB said, a drop of 1 percentage point from its April forecast, but will recover lost ground in 2023 with growth seen at 4.8%.

The growth outlook for the sub-regions was mixed, with Southeast Asia, Central Asia and the Pacific expected to grow faster than initially projected, while South Asia was forecast to expand more slowly due to the economic crisis in Sri Lanka and high inflation in India.

Key points-

This Supplement revises the growth forecasts for developing Asia from 5.2% to 4.6% for 2022 and from 5.3% to 5.2% for 2023, reflecting worsened economic prospects because of COVID-19 lockdowns in the People’s Republic of China (PRC), more aggressive monetary tightening in advanced economies, and fallout from Russia’s protracted invasion of Ukraine.

The inflation forecast for developing Asia is revised up, from 3.7% to 4.2% for 2022 and from 3.1% to 3.5% for 2023, amid higher fuel and food prices. Inflation pressures in the region are, however, less than elsewhere in the world.