The Asian Development Bank has revised the forecast on economic growth for Asia upwards despite deflationary pressures emanating from China, its giant economy. This was contained in a comprehensive report detailing the fresh projection of the region's economic trajectory, which was published recently.
It projects that developing Asian economies now will grow by 4.7% in 2024, from the previous estimate of 4.6%. This revision has been upward due to stronger-than-expected performances of major economies, combined with increasing consumer spending and robust investment activities across the region. However, positive trends come with a catch-an expected weakening in price growth, influenced a great deal by the deflationary trends in China.
Headlined by a sluggish growth of domestic demand, oversupply in many sectors, and other macroeconomic challenges, deflation has dragged China-the largest economy in Asia-in recent months. The ripple effects continue to affect not just the economy internally but its trading partners and the broader Asian market as well.
Deflationary pressures are thus something of a two-edged sword for China: while they bring with them the obvious advantages of greater purchasing power and consumer spending to catalyze economic growth, the downward spiral of prices may become self-perpetuating. The ADB also warned that "sustained deflation" could have more far-reaching consequences, such as squeezing corporate profits, frozen wages, and general economic instability.
The report also underscores how growth has been differential across a slew of Asian economies. For instance, India is likely to sustain the momentum of high growth on account of strong domestic consumption and favorable government policies. Similarly, Southeast Asian countries, including Indonesia and the Philippines, are also expected to log in healthy growth on the back of rising industrial activities and foreign investments.
Not all of the outlook is uniformly positive, though. For example, countries such as Thailand and Vietnam are highly export-dependent on China and will almost surely be affected by the slowing economy there. Moreover, geopolitical tensions and currency fluctuations remain risks that could impact regional economic stability.
Monetary policy responses are also expected to vary across Asia, with several central banks set to continue to maintain accommodative stances in support of growth and against deflationary pressures. The ADB emphasizes that structural reforms and well-conceived policy measures would be required to achieve more sustained longer-term growth and help resolve current and impending economic problems.
The ever-changing world economic environment creates a further benchmark that policymakers, investors, and businesses are in need of being informed about through the ADB's updated forecast. The economic delicacy of nurturing growth without allowing deflationary risks will determine Asia's continued resilience and progress.
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Author: Rachel Greene
