26 April 2023
The IMF has issued an update on the global economy, with one report focusing on the APAC region. While overall, the APAC report is hugely positive, we know there are challenges, many of which have been highlighted by the IMF. To put this into perspective, the APAC region will contribute more than 70% to global growth this year, a staggering figure!
As ever, China is the key to short, medium and long-term growth in the APAC region. Interestingly, while the region as a whole is expected to show growth of 4.6%, up from 3.8% last year, it is the basis of this growth that is catching investors' attention. Typically, around 17 % of growth in China has resulted from consumption, with investment making up the 83%. However, this is about to change!
Expectations in 2023 suggest investment will account for around 14%, with consumption at 86%, a significant turnaround. This new trend corresponds with the expected increase in internal trade within the APAC region.
While dangerous to discount any more Covid related challenges, both the global and, in this instance, the APAC economies are over the worst. Reopening borders and economies is always important and a fall in global commodity prices has also helped economies. In addition, global supply chain issues have eased, although inflation remains stubbornly high.
The spectre of inflation will be critical in the short to medium term, with global central banks likely forced to increase or, at best, retain relatively high-interest rates. This couldpotentially have a powerful drag effect on some of the high-growth economies in Southeast Asia.
While APAC corporate and household debt has increased significantly since the pandemic, in truth, the trend had already started before Covid. The longer interest rates remain high, the more likely some heavily leveraged regional companies will struggle. As for household debt, high-interest rates will make it uncomfortable for some households, but economic growth and a strong employment market should soften the impact.
Looking further ahead, some banks in the APAC region will be forced to take a financial hit from the highly leveraged companies. However, unlike parts of Europe and the US, Asian financial systems are well-capitalised with solid liquidity buffers. This headroom should be sufficient to see the banking industry through the worst of any future challenges.
Economic growth across the APAC region is expected to come in at 4.6% in 2023, falling slightly to 4.4% in 2024. Looking at specific economies, there are high expectations for the likes of:-
• Vietnam, 5.8% growth in 2023, rising to 6.9% in 2024
Of the more advanced economies, growth rates are subdued:-
• Hong Kong, 3.5% growth in 2023, falling to 3.1% in 2024
It is evident from the figures that emerging market economic growth will significantly outstrip that of more advanced economies in the short term.
While it would be foolish to suggest there are no economic challenges ahead for the APAC region, economic growth is expected to be relatively strong compared to the global economy. China will again be the financial key to recovery, but it is interesting to see some emerging markets bounce back from pandemic-related challenges. The influence of the APAC region on the global economy has increased in recent years and, looking at these figures, is set to strengthen even further in the short term.Back to News