Regional Economic Outlook for Asia and Pacific, October 2022

Regional Economic Outlook, October 2022

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Growth in Asia and Pacific rebounded by 6.5 percent in 2021.
Growth is expected to moderate to 4.0 percent in 2022 and rise to 4.3 percent in 2023.
The region is expected to expand at a rate well below the average rate of 5½ percent seen over the preceding two decades.
Inflation has risen above most central bank targets and is expected to peak in late 2022.
New headwinds as pandemic effects wane:
- Global financial tightening.
- An expected slowdown of external demand.
Policy stance:
- Policy support is being gradually withdrawn as inflation rises and idle capacity is utilized.
- Monetary policy should be ready to tighten faster if the rise in core inflation turns out to be more persistent.
- Rising public debt levels call for continued fiscal consolidation.
- Interventions to mitigate global food and energy shocks should be well targeted, temporary, and budget neutral.
Structural priorities:
- Make up for lost schooling through investments in education and training.
- Promote diversification.
- Address the debt overhang from the pandemic.
- Harness digitalization.
Geopolitics and climate:
- Strong multilateralism—including through international organizations, the Group of Twenty and regional processes—will be needed to mitigate geo-economic fragmentation and deliver progress on climate change commitments.

Restates headline projections: 6.5 percent rebound in 2021; 4.0 percent in 2022; 4.3 percent in 2023.
Emphasizes risks from:
- Global financial tightening.
- Slowdown in external demand.
- Rising inflation above most central bank targets, with a peak expected in late 2022.
Policy guidance:
- Gradual withdrawal of policy support.
- Readiness to tighten monetary policy if core inflation persists.
- Fiscal consolidation to address rising public debt, while ensuring mitigations for food and energy shocks are temporary and budget neutral.
Structural reform agenda reiterated (education, diversification, debt resolution, digitalization).
Call for strong multilateralism to address geo-economic fragmentation and climate commitments.

Main finding: COVID-19 opened deep economic scars in Asia and Pacific unlikely to fully heal in the medium term.
Drivers of medium-term output losses:
- Lower investment.
- Lower employment.
- Lower productivity growth.
Asia-specific factors increasing output losses:
- High level of nonfinancial corporate debt expected to drag investment down in the medium term.
- Education losses and decline in fertility reducing labor growth in the long term.
Policy recommendations to mitigate scarring:
- Tackle the corporate debt overhang.
- Mitigate human capital losses, including making up for lost schooling.
- Accelerate digitalization: faster adoption can boost productivity and improve resilience.
Note: Reform priorities will depend on country-specific circumstances.

Trade has been an engine of growth for Asia and the world.
Recent rise in geopolitical tensions (US-China trade tensions and Russia’s invasion of Ukraine) raises concerns about trade fragmentation.
Evidence and risks documented:
- Early signs of trade fragmentation in the form of rising trade restrictions and uncertainty.
- Empirical analyses show higher trade policy uncertainty leads to adverse macroeconomic outcomes.
- Early signs of financial fragmentation that could add to costs.
Scenario analysis:
- Model simulations suggest a sharp fragmentation scenario—world divides into separate trading blocs—would carry large, permanent output losses.
- Asia would be especially hard hit given its significant role in global manufacturing and trade.

Regional Economic Outlook for Asia and Pacific, October 2022 (web landing page).

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