Brighter Prospects Amid Ongoing Challenges

1
 Brighter prospects amid ongoing challenges

• PRC's reopening has lifted developing Asia's prospects

• Weaker global demand dampened production late last year, but recent indicators of
business conditions signal improvement

• Growth in the region is forecast to pick up from 4.2% in 2022 to 4.8% in both 2023
and 2024

• Inflation is forecast to moderate this year and next, from 4.4% in 2022 to 4.2% in
2023 and 3.3% in 2024, gradually moving closer to pre-pandemic averages

• Faster-than-expected reopening of the PRC poses an upside risk, but many

challenges remain
ASIAN DEVELOPMENT
2 OUTLOOK APRIL 2023
 Developing Asia’s growth moderated in H2 2022 due
to weakening global demand
Falling exports slowed growth in H2 2022 in key technology exporters,
while stronger private consumption and investment boosted growth in 4 ASEAN economies.
Demand-side Contributions to Growth, 2022
Percentage points Total consumption Private consumption
15 Government consumption Total investments
Net exports GDP growth, developing Asia
8.2 GDP growth 10.4
10 6.9
7.8 7.4
5.3 5.2 5.4
4.1 3.9 4.3
5 2.6 3.4 3.0 3.1 3.4 2.9
2.2 1.6 2.3

-5
-2.6
-4.4
-10
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022 2022
Developing Hong Kong, India PRC Republic of Singapore Taipei,China Indonesia Malaysia Philippines Thailand
Asia China Korea
Key technology exporters ASEAN-4
ASEAN = Association of Southeast Asian Nations; GDP = gross domestic product; H = half, PRC = People’s Republic of China.
Note: Chart excludes statistical discrepancies. Developing Asia average is weighted by GDP purchasing power parity.
ASIAN DEVELOPMENT
Source: Haver Analytics. 3 OUTLOOK APRIL 2023
 Weaker external demand dented manufacturing
activity but prospects are improving
Industrial production declined in Q4 2022 Business prospects improved in early 2023 in most economies
in manufacturing exporters.
Industrial Production Purchasing Managers’ Index
(>50 improvement; <50 worsening)
Malaysia Singapore Thailand
Viet Nam Republic of Korea Taipei,China
2022 2023
% change year on year, seasonally adjusted, 3-month moving average Economy Q1 Q2 Q3 Q4 Q1
15 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
India 54.0 54.9 54.0 54.7 54.6 53.9 56.4 56.2 55.1 55.3 55.7 57.8 55.4 55.3
10 Thailand 51.7 52.5 51.8 51.9 51.9 50.7 52.4 53.7 55.7 51.6 51.1 52.5 54.5 54.8
Philippines 50.0 52.8 53.2 54.3 54.1 53.8 50.8 51.2 52.9 52.6 52.7 53.1 53.5 52.7
PRC 49.1 50.4 48.1 46.0 48.1 51.7 50.4 49.5 48.1 49.2 49.4 49.0 49.2 51.6
5 Indonesia 53.7 51.2 51.3 51.9 50.8 50.2 51.3 51.7 53.7 51.8 50.3 50.9 51.3 51.2
Viet Nam 53.7 54.3 51.7 51.7 54.7 54.0 51.2 52.7 52.5 50.6 47.4 46.4 47.4 51.2
Singapore 50.6 50.2 50.1 50.3 50.4 50.3 50.1 50.0 49.9 49.7 49.8 49.7 49.8 50.0
0
Taipei,China 55.1 54.3 54.1 51.7 50.0 49.8 44.6 42.7 42.2 41.5 41.6 44.6 44.3 49.0
Republic of Korea 52.8 53.8 51.2 52.1 51.8 51.3 49.8 47.6 47.3 48.2 49.0 48.2 48.5 48.5
-5 Malaysia 50.5 50.9 49.6 51.6 50.1 50.4 50.6 50.3 49.1 48.7 47.9 47.8 46.5 48.4
PRC = People’s Republic of China, Q = quarter.
Note: Pink to red indicates worsening (<50) and white to green indicates improvement (>50). Series
-10 for Singapore is not seasonally adjusted.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Source: CEIC Data Company.
2022 2023

Source: CEIC Data Company.

ASIAN DEVELOPMENT
4 OUTLOOK APRIL 2023
 Exports retreated, but tourism continues its advance

Exports weakened, especially for key technology exporters. Tourism is recovering steadily.

Nominal Exports Visitor Arrivals

Caucasus and Central Asia
$, 2019 = 100 East Asia
% change from 2018-2019 monthly average
The Pacific
160 25 South Asia
Southeast Asia

140 People's Republic of China 0

Developing Asia excluding PRC

-25
120
Key technology exporters

-50
100

-75
80
-100
Jan Jul Jan Jul Jan Jul Jan Jul Jan
60
2019 2020 2021 2022 2023
Jul Jan Jul Jan Jul Jan Jul Jan
2019 2020 2021 2022 2023 Caucasus and Central Asia = Armenia and Georgia; East Asia = Hong Kong, China, Republic of Korea, and Taipei,China;
The Pacific = Cook Islands, Fiji, Palau, Samoa, Tonga, and Vanuatu ; South Asia = Bhutan, India, Maldives, Nepal, and Sri
Key technology exporters = Singapore, Republic of Korea, Taipei,China.
Lanka ; Southeast Asia = Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, Philippines,
Sources: CEIC Data Company, CPB World Trade Monitor. Singapore, Thailand, and Viet Nam.
Note: Adjustments made to the Caucasus and Central Asia because complete data not available for all economies.
Sources: CEIC Data Company, national sources. ASIAN DEVELOPMENT
5 OUTLOOK APRIL 2023
CONFIDENTIAL. This information is accessible to specific named ADB Management and/or staff. It may not be shared with other ADB staff or external parties without appropriate permission.
 Financial conditions improved in late 2022
Equity markets revived in November 2022 on More than half of the currencies have appreciated since October 2022.
moderating pace of US monetary tightening Exchange Rate Movements Against USD
Equity Market Performance Armenia 1 January to 30 September 2022
Georgia
Developing Asia CBOE Volatility Index Tajikistan 1 October 2022 to 17 March 2023
Cambodia
Index, 3 January 2022 = 100 30-day moving average Singapore
Tonga
105 November FOMC 34 Thailand
meeting Kyrgyz Republic
Fiji
Samoa
100 30 Uzbekistan
Kazakhstan
Vanuatu
Philippines
95 26 Indonesia
Malaysia
PRC
Republic of Korea Depreciation Appreciation
90 22 Taipei,China
India
Mongolia
Bangladesh
85 18 Lao People’s Dem. Rep.
Jan Mar May Jul Sep Nov Jan Mar Pakistan
2022 2023 Sri Lanka

-60 -45 -30 -15 % 0 15 30

ASIAN DEVELOPMENT
CBOE = Chicago Board Options Exchange, FOMC = Federal Open Market Committee.
Source: Bloomberg.
6 Note: Includes 25 economies with large currency movements since October.
Source: Bloomberg. OUTLOOK
APRIL 2023
CONFIDENTIAL. This information is accessible to specific named ADB Management and/or staff. It may not be shared with other ADB staff or external parties without appropriate permission.
 Fiscal positions will improve and the pace of monetary
tightening ease
Fiscal balances diverged in 2022 but are expected to improve for …while monetary tightening is expected to slow down.
most economies in 2023….
Changes in Fiscal Balance from Previous Year (pp) Policy Interest Rate Decisions, Selected Regional Economies
Change in 2022 Change in 2023
Number of policy actions
Hike Hold Cut
Hong Kong, China -4.9 3 18
Republic of Korea -1.8 2.7 51% Hikes 35% Hikes
Sri Lanka 1.8 1.9 45% Hold 65% Hold
Philippines 1.3 1.2 15 Average size: 86 bps 39 bps
Pakistan -1.8 1
Malaysia 0.6 0.8
12
India 0.3 0.6
Lao PDR -1.0 0.5
Thailand 0.4 1.3 9
Myanmar 0.3 0.4
Singapore -0.9 0.2
Viet Nam -0.3 0 6
PRC -0.9 0
Cambodia -0.3 1.3
3
Indonesia -0.5 2.2
Bangladesh -1 -0.9
Mongolia -2.4 3.9 0
Taipei,China -2.7 0.8 Jan Apr Jul Jan
Oct
2022 2022 2023
-12 -9 -6 -3 0 3 6
Lao PDR = Lao People’s Democratic Republic, PRC = People’s Republic of China, pp = percentage points
Note: Fiscal balance is the difference between a government’s revenues (taxes and proceeds from asset sales) and its expenditures, Note: Economies included are Armenia; Azerbaijan; Georgia; Hong Kong, China; India; Indonesia; Kazakhstan;
expressed as a percentage of GDP. Fiscal balance for the Republic of Korea includes social security contributions. Cambodia data and Kyrgyz Republic; Malaysia; Mongolia; Pakistan; Philippines; People’s Republic of China; Republic of Korea; Sri
forecasts for the PRC and Thailand are from Focus Economics. Sources: Asian Development Outlook database; National sources; Lanka; Tajikistan; Taipei,China; Thailand; and Uzbekistan.
ASIAN DEVELOPMENT
FocusEconomics. 2023. Economic Consensus Forecast Reports. March; Asian Development Bank calculations. 7 Source: Trading Economics.
OUTLOOK APRIL 2023
 Global headwinds are likely to remain strong

Monetary tightening will continue in Commodity prices are expected to remain elevated.
advanced economies, but at a slower pace.
Policy Rates Fossil Fuel Prices Food Prices
Brent crude ADO forecast Rice (Thailand) Palm oil (Malaysia)
LNG Japan-Korea Marker Futures 3 Mar 2023 Corn (US) Wheat (US)

% $/barrel $/MMBTu % change from 31 Dec 2019

6 120 60 160
Forecast Futures
5 120
90 45
4 US Federal
80
Reserve
3 60 30
40
2
European 30 15
Central Bank 0
1

0 0 0 -40
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan JanJan
2020 Jan Jan
2021 Jan Jan
2022 JanJan
2023 JanJan
2024 JanJan
2025
2019 2020 2021 2022 2023 2024 2025 2020 2021 2022 2023 2024 2025 2020 2021 2022 2023 2024 2025
Note: Forecasts are from the European Central Bank’s survey of LNG = liquefied natural gas, MMBTu = metric million British thermal unit.
professional respondents and the Federal Reserve’s Summary of Note: Food prices are 7-day moving averages.
Economic Projections. Sources: Bloomberg; CEIC Data Company; Investing.com; World Bank. Commodity Markets, Pink Sheet data.
ASIAN DEVELOPMENT
Sources: European Central Bank; Federal Reserve.
8 OUTLOOK APRIL 2023
 Reopening has revived PRC's business activities

Mobility is now back to pre-pandemic levels. Business activities in services are rebounding the fastest.
Subway Ridership in 23 Cities in PMI Components
the People’s Republic of China
% of 2019 average Manufacturing Construction Services
150 Relaxation of COVID-19 Index
restrictions
60 Lockdown
125 in Shanghai

55
100

50
75

45
50

40
25 Relaxation of COVID-19
restrictions
35
0 Jan Mar May Jul Sep Nov Jan Mar
Jan 2020 Jul 2020 Jan 2021 Jul 2021 Jan 2022 Jul 2022 Jan 2023 2022 2023
Note: 7-day average, last data point is 8 March 2023. Note: PMI = Purchasing Managers’ Index
Source: Capital Economics. ASIAN DEVELOPMENT
9 Source: CEIC Data Company.
OUTLOOK APRIL 2023
 PRC's recovery coupled with healthy domestic demand
elsewhere in the region will support growth
GDP growth is expected to return to pre-pandemic rates... ...with some variation across economies.

2022 2023 2024

Caucasus and Central Asia East Asia Developing Asia 4.2 4.8 4.8
Developing Asia excluding the PRC 5.4 4.6 5.1
South Asia Southeast Asia
Caucasus and Central Asia 5.1 4.4 4.6
% The Pacific
Kazakhstan 3.2 3.7 4.1
Uzbekistan 5.7 5.0 5.0
8
East Asia 2.8 4.6 4.2
People’s Republic of China 3.0 5.0 4.5
4 Republic of Korea 2.6 1.5 2.2
South Asia 6.4 5.5 6.1
India 6.8 6.4 6.7
0 Pakistan 6.0 0.6 2.0
Sri Lanka -7.8 -3.0 1.3
Southeast Asia 5.6 4.7 5.0
-4 Indonesia 5.3 4.8 5.0
Forecast Viet Nam 8.0 6.5 6.8

-8 The Pacific 5.2 3.3 2.8

2017 2018 2019 2020 2021 2022 2023 2024 Fiji 15.9 6.3 3.0
Papua New Guinea 3.2 2.4 2.6
Source: Asian Development Outlook database. ASIAN DEVELOPMENT
10 Source: Asian Development Outlook database.
OUTLOOK APRIL 2023
CONFIDENTIAL. This information is accessible to specific named ADB Management and/or staff. It may not be shared with other ADB staff or external parties without appropriate permission.
 Inflation is forecast to moderate, moving closer to
pre-pandemic rates
Regional inflation is projected to decelerate... …but price pressures will continue to vary across economies in 2023.

Caucasus and Central Asia East Asia Caucasus and East

South Asia Southeast Asia Comparators Central Asia Asia South Asia Southeast Asia The Pacific
Developing Asia %

30 27.5
%, year on year
Forecast 24.6
16 25

20
12 16.0
14.9
15
11.8 11.0
8 10 8.7
6.2 6.2
4.4 4.2 5.0 4.2 4.5 4.2 5.0
5 2.2
3.2 2.9
4
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2019 2020 2021 2022 2023 2024 2025 G3 = Euro area, Japan, US; DA = Developing Asia, Non-Asian EM = Emerging and Developing Europe as per the IMF, excluding
ADB developing members, PRC = People’s Republic of China.
Source: Asian Development Outlook database. Sources: Asian Development Outlook database; IMF WEO database.
ASIAN DEVELOPMENT
11 OUTLOOK APRIL 2023
CONFIDENTIAL. This information is accessible to specific named ADB Management and/or staff. It may not be shared with other ADB staff or external parties without appropriate permission.
 PRC's reopening poses an upside risk, but many
challenges remain
• Reopening in the PRC could cause a faster-than-expected rebound.

• Disinflation in the US and other advanced economies could take longer than
expected, prolonging the restrictive monetary stance.

• Higher interest rates and debt has raised financial stability risks—as seen in recent
banking turmoil in US and Europe.

• Escalation of the Russian invasion of Ukraine could renew energy and food security
challenges and rekindle inflation pressure.

• Other challenges include global fracturing and climate change.

ASIAN DEVELOPMENT
12 OUTLOOK APRIL 2023