The Asean+3 Macroeconomic Research Office (AMRO) yesterday marginally lowered its short-term growth forecast for the Asean+3 region, reflecting the impact of the recent re-emergence of Covid-19 in China and stronger headwinds arising from the war in Ukraine and tighter global financial conditions.
The Asean+3 region comprises the 10 Asean countries plus China, South Korea and Japan.
In its July quarterly update, AMRO forecast that the Asean+3 region will grow by 4.3 percent this year, slightly lower than its April forecast of 4.7 percent growth. AMRO raised its 2022 inflation forecast for the region to 5.2 percent, up by 1.7 percentage points from April. Growth is expected to strengthen to 4.9 percent in 2023, while inflation is projected to moderate to 2.8 percent.
“Just as the Asean+3 region is starting to emerge from the Covid-19 health crisis, the protracted war in Ukraine and persistent inflation in the United States have ushered in a new set of challenges for policymakers,” said AMRO Chief Economist Hoe Ee Khor, according to a release.
Five months since it started, the war in Ukraine is set to persist. In addition to exacerbating global supply chain woes, the war and sanctions on Russia have led to higher global prices for fuel and food, causing inflation to accelerate across Asean+3.
In the US, surging prices have caused the Federal Reserve to tighten monetary policy at a faster pace than expected, which has raised concerns about an imminent recession. Financial markets have sold off and risk aversion has spiked, leading to capital outflows from emerging markets.
The recent Covid-19 outbreak in Shanghai had led to lockdowns and disrupted production and supplies in the region. Accordingly, growth for the whole year has been shaved down for China and the region.
“Navigating this formidable environment, Asean+3 policymakers are now facing difficult policy trade-offs as they balance the need to sustain the growth momentum while containing the inflationary pressure,” Khor added.
AMRO noted that more Asean+3 economies are shifting to treating Covid-19 as endemic. The further easing of containment measures and travel restrictions should allow for a fuller resumption of economic activity and help boost domestic demand. As a result, growth, especially in the Asean region, is expected to remain robust this year and the next.
The war in Ukraine continues to pose a risk to the economic outlook in the region. Its effects are already being felt in the region through higher energy prices. While ASEAN+3 economies have limited direct exposure to Russia and Ukraine, they will not remain unscathed if the war drags on. The economic fallout – disrupted global supply chains, higher global inflation, and lower global growth – would undoubtedly hurt ASEAN+3 exports and growth.
Within ASEAN+3, financial risks are still elevated in many economies due to the pandemic. Macro-financial policies continue to be focused on alleviating the pandemic’s impact on households and firms and supporting an economic recovery. If the recovery is delayed, more businesses and individuals could come under financial stress.
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.
