In this interview, we speak with Sung Eun Jung, economist at Oxford Economics, about the prospects for emerging economies in Asia in 2023. We further speak about China’s economic role in the region and bright spots of growth in Asia-Pacific in 2023.
Unravel: What are some key challenges emerging market economies in the region will be faced with in the new year?
Sung Eun Jung: Emerging markets in Asia will be faced with weaker domestic demand as the economic boost from reopening fades, except in China where it’s just reopening now. Moreover, tighter monetary policy and financial conditions observed in 2022 (except in China) will dampen domestic demand with a lag this year, while fiscal space is strained across the region. Export-oriented economies will also suffer from weaker global demand for goods as consumption continues to switch to services and many advanced economies enter into economic recessions.
Unravel: Do you see demand picking up in the region in 2023? What will it depend on?
Ms Jung: We expect domestic demand will grow at a slower pace this year compared to 2022 across the region (except China) as tighter financial conditions bite into consumption and investment. We forecast inflation will trend down in 2023, thanks to lower commodity prices, which will support real income for households. But weak global growth outlook will dampen goods exports and business investment. A sharper-than-expected drop in prices coupled with earlier rate cuts this year remain upside risks for demand.
Unravel: Do you expect China to contribute strongly to economic growth in the region next year?
Ms Jung: We remain cautious in the growth boost from China’s earlier-than-expected reopening, especially given weak recent domestic activity data, and maintain our below-consensus China’s growth forecast at 4.2% for this year. We think domestic demand conditions are still too weak for a quick growth recovery. That said, an earlier return of tourists from China could bring forward the gains to trade and growth for tourism-dependent economies such as Thailand.
Unravel: Which economies will be the bright spots of growth in Asia-Pacific in 2023?
Ms Jung: We think Thailand will benefit from tourism and lower oil prices this year and forecast an acceleration in growth from 2022, the only country other than China in the region to do so. While slowing from 2022, we also expect resilient growth in India and Japan this year. Despite cyclical headwinds, we project India’s growth will be broad-based with domestic demand providing an anchor. Japan will benefit from ongoing recovery in the auto sector and loose macro policy.