Economic prospects in Asia and the Pacific: Celebrate resilience, prepare for headwinds
— Economic performance in Asia and the Pacific has proved to be quite resilient to the shocks of the past few years: the coronavirus pandemic, the ongoing wars in Ukraine and the Gaza Strip, and the cost-of-living crisis. In 2023, the region’s economy drove over 60 percent of the global economic growth.
Positive economic conditions in the region are evident since the start of 2024. Economic growth picked up in major economies amid strong private consumption driven by steady employment and moderating inflation.
While not broad-based, exports also rebounded in several countries such as China, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka and Vietnam after contraction in previous quarters. Yet, it is premature to say whether this trend would continue to gain further momentum.
For both 2024 and 2025, the United Nations Economic and Social Commission for Asia and the Pacific (Escap) projects the developing Asia-Pacific economies to grow 4.4 percent on average. Though quite decent, this is slower than the earlier projection of 4.8 percent highlighted in 2023 and the average 5.4-percent growth experienced in the pre-pandemic years of 2017 and 2019.
Domestic demand, especially household consumption, is likely to continue to drive economic growth as inflation is expected to decline from an average of 5.2 percent in 2023 to 4.8 percent in 2024 and 3.8 percent in 2025. Despite this resilient performance, vigilance is needed, as several near-term risks and challenges lie ahead.
First, China’s economic performance presents both upside and downside risks. On the upside, the economic stimulus announced in May 2024 has the potential to lift public investment. Part of this stimulus includes measures to support the country’s property market, which could help stabilize the downturn including falling house prices and boost confidence, although the pace and strength of recovery are uncertain.
While exports have been providing near-term support since the start of 2024, the expected slower-than-expected global growth, financial conditions that will remain tighter-for-longer and increased trade tensions present some downside risks.
As China accounts for over 40 percent of the region’s economic output, its economic performance will have notable impacts on export performance of other regional peers and beyond.
Second, financial stability risks are on the rise in some Asia-Pacific countries as high debt servicing costs have weakened the debt repayment ability of not only governments but also firms and households.
For example, the proportion of default loans have increased between 0.5 and 2.5 percentage points since end-2022 in economies such as Bangladesh, Pakistan and Vietnam, where the nonperforming loan ratio stands about 5 to 10 percent.
Third, while policy rate cuts have begun in Canada and the European Union, similar monetary easing in the United States may come later than expected due to strong employment conditions and above-target inflation. This influences the monetary policy stance of Asia-Pacific central banks.
Even when inflation falls back within official targets, some central banks may still be reluctant to cut policy rates to guard against capital outflows and subsequent currency depreciations.
Fourth, the recent increases in global food and energy prices since the beginning of 2024 raise renewed concerns regarding inflation. Global oil prices have already increased by an average of 8 percent so far in 2024 compared to 2023. Domestic policies will also play a role.
For example, the Malaysian government has announced a shift from blanket diesel subsidies toward a more targeted one, which could result in higher inflation.
Finally, continued geopolitical tensions in Ukraine and the Middle East could disrupt supply chains through diversion of trading routes and further push up freight costs. For example, the Shanghai Containerized Freight Index, which measures the shipping costs from Asia to Europe, in May 2024 was about 180 percent higher than the preMiddle-East conflict level in October 2023.
Uncertainty regarding near-term economic outlook has direct implications for people’s socioeconomic well-being. Slower economic growth would lead to subdued job creation and wage growth. People’s purchasing power in Asia and the Pacific has already eroded, as the rise in wage earnings is struggling to keep up with inflation.
In many Asia-Pacific economies, over 60 percent of those employed are informal workers who work in precarious jobs and have no social safety net to fall back on in case economic conditions worsen.
Furthermore, difficult economic conditions could constrain tax revenue collection, thus undermining government’s efforts to step up investments in support of the UN’s Sustainable Development Goals.
While we acknowledge the economic resilience of economies in Asia and the Pacific, and the positive economic conditions evident so far since the start of 2024, policymakers must also be cognizant and prepared for the uncertainties that may unfold.