The government’s non-Covid strategy is becoming a growing economic risk.
(Photo: dpa)
Bangkok For the first time in more than three decades, the economy in China is growing more slowly than in the rest of the emerging countries in Asia. This emerges from the economic forecast published on Wednesday by the Asian Development Bank (ADB). The bank’s economists are noticeably lowering their expectations for the continent’s largest economy: They are now only assuming a growth rate of 3.3 percent for the current year. In April they still expected an increase in gross domestic product of five percent.
The more than 40 other emerging markets in the Asia-Pacific region analyzed by the bank are developing significantly better with an expected increase of 5.3 percent – their forecast was only slightly revised. The last time China’s growth was weaker than that of other emerging markets was in 1990. Since then, China has been the continent’s growth engine for more than 30 years.
At the moment, however, the country is one of the biggest risks for its neighbors: If the economy in the People’s Republic cools down even more than expected, the countries that are dependent on trade with China would face serious problems, warns ADB chief economist Albert Park.
The zero Covid strategy is one of the biggest brakes
Concerns about the Chinese economy are mainly due to the zero-Covid policy of the government in Beijing, which keeps bringing the country new lockdowns. For the second half of the year, the ADB economists are expecting a slight growth spurt. “However, it is unlikely that the government will back away from its zero-Covid strategy,” the institution’s report said.
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In addition, the troubled real estate market continues to cause uncertainty: “Government measures are necessary to alleviate the stress on the real estate market, which is linked to many areas of the economy,” judges the ADB.
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The problems mean that China has moved from being the growth champion to one of the laggards among the region’s ten largest emerging markets. With an expected increase in GDP of almost three percent, the economy is only doing a little worse in Thailand and South Korea.
Economist Park also explains China’s decline with structural challenges: “The population is aging rapidly, but at the same time China has already exhausted many simple ways to ensure growth.” The country must now concentrate on pushing innovations.
India is the leader with seven percent growth
Park explains the serious shift in Asia’s growth ranking not only with China’s weakness: “It also reflects the dynamics in other parts of Asia.” With growth of around seven percent, India and Bangladesh are currently at the top of the major economies on the continent. India’s forecast has been corrected slightly downwards – the country is suffering from increased energy and food prices as a result of the Ukraine war. In addition, weaker global demand is also weighing on the export business. “Nevertheless, we expect strong growth,” says the ADB.
In Southeast Asia, Vietnam, the Philippines, Malaysia and Indonesia in particular are doing well despite global headwinds. For Indonesia, the fourth largest country in the world in terms of population, the ADB is raising its economic forecast from five percent in April to 5.4 percent now.
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The country is the world’s largest coal and palm oil exporter and is benefiting from the rise in commodity prices. The country’s exports increased by 37 percent in US dollar terms in the first half of the year compared to the previous year.
In the Philippines, it is above all domestic demand that makes the island state one of the fastest growing economies in Asia. The country can expect an increase in economic output of 6.5 percent for the current year – half a percentage point more than was forecast in April. The most important pillar is private consumption, which increased sharply after the end of corona restrictions – similar to Malaysia, which can expect growth of six percent.
According to the ADB economic analysis, Vietnam is on par with the Philippines at 6.5 percent. Among other things, the country benefits from a strong manufacturing sector – many international companies such as the electronics group Apple have relocated parts of their supply chains to the state of 100 million people in recent years. A further decline in global demand could also pose a threat to Vietnam’s success story.
ADB economist Park is nevertheless optimistic: “Despite many negative developments, we still expect that Asia’s emerging countries will continue to be a pillar of global growth,” he says. “They remain the most dynamic growth region in the world.”
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