ASIAN DEVELOPMENT OUTLOOK

S U P P L E M E N T DECEMBER 2022

HIGHLIGHTS GLOBAL GLOOM DIMS

„ Three main headwinds continue to
hamper recovery in developing Asia:
ASIAN PROSPECTS
recurrent lockdowns in the People’s
Republic of China, the Russian invasion
of Ukraine, and slowing global growth.
Growth forecasts for the region are
revised down from 4.3% to 4.2% in 2022
and from 4.9% to 4.6% in 2023.
„ East Asia’s growth forecasts are revised Recent developments
down to 2.9% in 2022—due to the
mobility restrictions mentioned above Global and regional developments since September have been roughly in line with
plus deep contraction in Hong Kong, pessimistic expectations laid out that month in the Asian Development Outlook
China—and down to 4.0% in 2023. 2022 Update.
„ The South Asian forecast for 2022 is
maintained at 6.5% but revised down The world economy chugged along in the third quarter (Q3) of this year but is
marginally for 2023 from 6.5% to 6.3% now set to slow markedly, weighed down by weakening in the United States, euro
following a slowdown in Bangladesh and area, and People’s Republic of China (PRC). Persistently elevated inflation in the
flooding in Pakistan. US led the Federal Reserve to raise its policy rate in November by 75 basis points,
„ The 2022 forecast for Southeast Asia is the fourth consecutive hike of that magnitude. Despite a resilient labor market,
upgraded from 5.1% to 5.5% on robust investment prospects and consumer confidence worsened, suggesting that the
consumption and tourism recovery in Q3 rebound to seasonally adjusted annualized growth of 2.6% will be short-lived.
Malaysia, the Philippines, Thailand, and Similarly in the euro area, GDP growth outperformed expectations in Q3, but annual
Viet Nam. The 2023 forecast is revised inflation spiked further to 10.6% in October. Leading indicators are consistent with
down to 4.7% as global demand weakens. continued deceleration deepened by an energy crisis and aggressive policy rate hikes
„ Growth prospects in the Caucasus and
by the European Central Bank. Economic activity in the PRC remains hampered by
Central Asia are adjusted up from 3.9% to
4.8% in 2022 as spillover from the Russian
invasion of Ukraine has been more benign
than expected. The growth forecast for
the Pacific in 2022 is also revised up, from The Asian Development Bank Regional Economic Outlook Task Force led the preparation of
4.7% to 5.3% on a strong tourism rebound a revised outlook for this Asian Development Outlook Supplement. The task force is chaired by
in Fiji. the Economic Research and Regional Cooperation Department and includes representatives
„ Regional inflation forecasts are revised of the Central and West Asia Department, East Asia Department, Pacific Department, South
down slightly for 2022 from 4.5% to 4.4% Asia Department, and Southeast Asia Department. The data and analysis in this Supplement are
generally based on information available to 30 November 2022.
but upgraded for 2023 from 4.0% to
4.2%. Even with outlook deterioration,
developing Asia will grow more than other
regions and suffer less inflation than most.
„ Multiple risks abound as the three main
headwinds could worsen, along with
geopolitical risks and climate change.
2 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT

sporadic coronavirus disease (COVID-19) outbreaks, zero- Easing pandemic conditions and containment measures have
COVID restrictions, and continued weakness in the property underpinned healthy domestic demand in most of developing
market. Growth picked up to 3.9% year on year in Q3, as the Asia this year. Mobility improved almost everywhere from earlier
Omicron wave faded, but is now losing steam. The official PRC in the year (Figure 2). Reflecting this, retail sales growth year on
purchasing managers’ index (PMI) fell to 49.4 in November, year was strongly positive from May to September in Indonesia,
below the threshold of 50 separating expected improvement Malaysia, the ROK, Singapore, Thailand, and Viet Nam (Figure
from deterioration, as conditions worsened across all sectors 3). In the same period, retail sales increased only slightly in the
except construction. PRC, weighed down by lockdowns in April and May, and declined
in Hong Kong, China, where strict pandemic curbs started to relax
Adding to a consumption shift post pandemic from goods to gradually only in September.
services, slowdowns in the world’s largest economies are further
depressing demand for manufactured goods from developing Regional inflation having risen further in the second half of
Asia. Exports of goods from the PRC declined by 10.4% between 2022, may have already peaked in many economies. Global oil,
July to October. In the rest of the region, exports dropped in July gas, and food prices have come down from their highs earlier
by more than 7% from their peak in June and stabilized around this year, though they remain more elevated than before the
that level in August. Lower export orders point to continued Russian invasion of Ukraine. Headline inflation in developing Asia
weakness going forward. Among the 11 economies for which reached 5.6% in September, up from 3.0% at the start of the year,
data on new export orders are available, 10 recorded readings then declined to 5.2% in October (Figure 4). For 22 of the 28
below 50 in November, indicating declines from the previous economies in developing Asia with monthly inflation data, inflation
month (Figure 1). India was the only exception. Readings of 48.3 has now come down from peaks reached earlier in the year,
for the Republic of Korea (ROK) and 35.1 for Taipei,China are including in the largest economies: the PRC, India, Indonesia,
particularly indicative of the worsening external environment, the Republic of Korea, and Taipei,China (Figure 5). Even with the
as these economies are typically bellwethers for international recent declines inflation remains well above normal levels in many
trade conditions. PMI readings are also consistent with softening economies, and further supply disruptions and price shocks are
economic activity in most economies. possible, so continued vigilance from policymakers is required.

Figure 1 Leading indicators: New export orders and manufacturing PMIs

Leading indicators show signs of weakening.

Export orders Purchasing managers’ index

Worsening Improving Worsening Improving

India India

Singapore Singapore

People’s Republic of China People’s Republic of China

Thailand Thailand

Republic of Korea Republic of Korea

Philippines Philippines

Hong Kong, China Hong Kong, China

Malaysia Malaysia

Viet Nam Viet Nam

Indonesia Indonesia

Taipei,China Taipei,China
30 40 50 60 70 30 40 50 60 70
Index Index

PMI = purchasing managers’ index.

Note: PMIs are for manufacturing in November 2022 except for Hong Kong, China, where they cover the whole economy in October.
Source: CEIC Data Company (accessed 5 December 2022).
 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT 3

Figure 2 Mobility in retail and recreation establishments

Mobility has improved almost everywhere.
2022
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Indonesia 7.5 3.8 7.8 8.9 18.6 12.0 14.3 14.7 13.9 11.4
Philippines –13.9 0.0 3.0 5.1 12.6 14.1 14.7 20.3 21.2 26.5
India –9.2 3.3 7.5 9.4 10.2 8.7 6.1 13.9 13.2 18.4
Republic of Korea 1.6 –3.3 –10.5 0.2 9.9 6.8 5.9 5.3 4.5 6.7
Thailand –0.9 7.9 –4.0 –4.2 –1.9 –1.3 –1.6 –2.5 3.2 1.3
Viet Nam –13.0 –13.5 –13.6 –0.9 0.4 1.6 4.0 5.2 6.0 5.7
Malaysia –7.2 –12.2 –12.1 –9.1 0.2 –0.4 –2.7 –1.2 0.6 0.1
Singapore –9.0 –16.1 –16.5 –14.3 –9.5 –8.7 –8.5 –5.4 –4.5 –4.7
Hong Kong, China –10.8 –30.5 –41.0 –25.7 –15.9 –14.9 –15.3 –13.1 –12.4 –10.3
Taipei,China –11.8 –14.8 –17.2 –21.4 –33.2 –27.9 –20.3 –17.8 –19.6 –17.9
Note: Numbers refer to change in the number of visitors in retail and recreation areas or in time spent there relative to the baseline: the median day in the 5 weeks from 3 January
to 6 February 2020. Shades of red indicate months with visitor traffic below the baseline and green above.
Source: CEIC Data Company (accessed 17 November 2022).

Figure 3 Retail sales Figure 4 Inflation

Retails sales posted strong growth from May to September. Headline inflation rose steadily by varying degrees this year, but it may already
have peaked in many economies.
% change year on year
Developing Asia Caucasus and Central Asia Euro area
30 South Asia Southeast Asia United States
East Asia

% year on year
20
16
15.8

10 12
10.6
10.5

0 8
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5.9
5.2
4
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Jan Jul Jan Jul Jan Jul Jan Jul Oct

2019 2020 2021 2022
PRC = People’s Republic of China.
Note: Bars plot the 5-month average of retail sales growth from May to September Source: CEIC Data Company (accessed 5 December 2022).
2022 except for Thailand, which is from April to August for lack of September data.
Source: CEIC Data Company (accessed 25 November 2022).

Central banks continue to raise policy rates, striving to curb Financial markets have flip-flopped between optimism and
inflation and safeguard financial stability. Monetary authorities pessimism in recent months, reacting to the latest US inflation
in developing Asia have hiked rates 68 times by an average numbers and whatever policy signals they can glean from Federal
of 63 basis points per hike so far in 2022, up from 23 rate Reserve officials’ speeches. But, in the year as a whole, the broad
hikes averaging 38 points per hike in 2021 (Figure 6). This has trend has seen financial conditions deteriorate. Regional bond
tightened financial conditions in the region, which have also been yields have risen, credit default swap spreads have widened,
greatly influenced by aggressive rate hikes in the US and Europe. equity markets have declined, and currencies have depreciated.
4 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT

Figure 5 Monthly inflation, % year on year

Inflation has come off its peak in 22 of 28 regional economies.
2022
Economy Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Caucasus and Central Asia
Armenia 7.1 6.5 7.4 8.4 9.0 10.3 9.3 9.1 9.9 9.5
Azerbaijan 12.4 11.9 12.1 12.9 13.7 14.1 13.7 14.1 15.6 15.6
Georgia 13.9 13.7 11.8 12.8 13.3 12.8 11.5 10.9 11.5 10.6
Kazakhstan 8.5 8.7 12.0 13.2 14.0 14.5 15.0 16.1 17.7 18.8
Kyrgyz Republic 11.2 10.8 13.2 14.5 14.0 13.1 13.8 15.6 15.5 15.4
Tajikistan 7.8 7.1 7.3 7.3 7.5 8.3 8.3 6.4 ... ...
Uzbekistan 9.8 9.7 10.4 10.4 11.0 12.2 12.3 12.3 12.2 12.2
East Asia
Hong Kong, China 1.2 1.6 1.7 1.3 1.2 1.8 1.9 1.9 4.4 1.8
Mongolia 15.1 15.3 15.7 15.8 16.2 16.9 16.4 14.4 13.8 14.5
People’s Republic of China 0.9 0.9 1.5 2.1 2.1 2.5 2.7 2.5 2.8 2.1
Republic of Korea 3.6 3.7 4.1 4.8 5.4 6.0 6.3 5.7 5.6 5.7
Taipei,China 2.8 2.3 3.3 3.4 3.4 3.6 3.4 2.7 2.8 2.7
South Asia
Bangladesh 5.9 6.2 6.2 6.3 7.4 7.6 7.5 9.5 9.1 8.9
India 6.0 6.1 7.0 7.8 7.0 7.0 6.7 7.0 7.4 6.8
Maldives 0.2 0.6 1.1 1.2 2.5 5.2 2.5 2.6 3.1 ...
Nepal 5.6 6.0 7.1 7.3 7.9 8.6 8.1 8.3 8.6 8.5
Pakistan 13.0 12.2 12.7 13.4 13.8 21.3 24.9 27.3 23.2 26.6
Sri Lanka 16.8 17.5 21.5 33.8 45.3 58.9 66.7 70.2 73.7 70.6
Southeast Asia
Brunei Darussalam 2.8 3.2 3.8 3.9 3.8 3.9 4.1 4.5 4.3 ...
Cambodia 4.1 6.3 7.2 7.3 7.2 7.8 5.4 4.9 4.4 ...
Indonesia 2.2 2.1 2.6 3.5 3.6 4.3 4.9 4.7 6.0 5.7
Lao People’s Democratic Republic 6.2 7.3 8.5 9.9 12.8 23.6 25.6 30.0 34.0 36.8
Malaysia 2.3 2.2 2.2 2.3 2.8 3.4 4.4 4.7 4.5 4.0
Myanmar 13.8 14.1 17.3 17.8 18.2 19.4 ... ... ... ...
Philippines 3.0 3.0 4.0 4.9 5.4 6.1 6.4 6.3 6.9 7.7
Singapore 4.0 4.3 5.4 5.4 5.6 6.7 7.0 7.5 7.5 6.7
Thailand 3.2 5.3 5.7 4.6 7.1 7.7 7.6 7.9 6.4 6.0
Viet Nam 1.9 1.4 2.4 2.6 2.9 3.4 3.1 2.9 3.9 4.3
... = not available.
Note: Dark green denotes low inflation, and dark red high inflation, relative to regional norms from January to October 2022. Missing economies lack monthly
inflation data.
Sources: CEIC Data Company (accessed 7 December 2022).
 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT 5

Figure 6 Monetary policy rate changes

Central banks in developing Asia have enacted more and larger rate hikes this year than in 2021.

2021
2022

Basis points

1,000

800

600

400

200

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ECB = European Central Bank, PRC = People’s Republic of China.

Note: 2022 is from 1 January to 8 December 2022.
Source: Bloomberg (accessed 8 December 2022).

Regional outlook and risks points to 4.6% as a darkening global outlook is expected to slow
Global economic prospects have worsened since the September expansion in every subregion but the Caucasus and Central Asia.
Update (box). The major advanced economies will expand slightly
more than previously anticipated this year but are expected to The Update forecast for regional inflation this year is revised
endure sharp deceleration in 2023. Tightening monetary and down marginally to 4.4% as downward revisions for East Asia,
financial conditions will drag on economic activity in the US and Southeast Asia, and the Pacific outweigh upward revisions in the
the euro area next year, with the latter likely to fall into a technical two remaining subregions. With upward revisions for South Asia,
recession. Despite this, inflation is forecast to continue to exceed Southeast Asia, and the Pacific in 2023, regional inflation is now
central bank targets in both the US and euro area in 2023, forecast to ease less next year than projected earlier, to 4.2%.
necessitating continued tightening, and oil prices are projected to
remain elevated. The baseline forecast assumes that the PRC will Even with the further deterioration in forecasts, developing Asia will
ease its zero-COVID policies only gradually to the forecast horizon. still grow more than other regions and suffer lower inflation than
most (Figure 7).
Against this backdrop, this Supplement revises only slightly the
regional outlook in the Update (table). Recovery in developing Asia Risks to the outlook abound. Stubbornly high inflation in the US
is expected to continue but lose some steam. The region’s 2022 and other advanced economies could prolong the current monetary
GDP growth forecast is revised down marginally to 4.2%, reflecting tightening cycle, and the synchronized nature of the squeeze may
downward revisions for East Asia and, particularly, the PRC, where bring overly restrictive monetary stances and unnecessary output
pandemic-induced disruption and unresolved problems in the and employment losses. Further growth deceleration in the PRC
property market are expected to weaken growth. By contrast, caused by pandemic or property market issues also threatens to
growth projections are revised up for the Caucasus and Central Asia jeopardize regional economic prospects. Similarly, a dangerous
on continued benign economic spillover from the Russian invasion situation in the Russian Federation and Ukraine could renew surges
of Ukraine, for Southeast Asia on recovering domestic demand and in commodity prices, stoking global inflation and inducing further
tourism, and for the Pacific on rebounding tourist arrivals in Fiji. The monetary tightening. Additional challenges are geopolitical tensions,
regional growth projection for 2023 is trimmed by 0.3 percentage notably worsening PRC–US relations, and climate-related risks.
6 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT

GDP growth rate and inflation, %

GDP growth Inflation
2021 2022 2023 2021 2022 2023
September December September December September December September December
Update ADOS Update ADOS Update ADOS Update ADOS
Developing Asia 7.0 4.3 4.2 4.9 4.6 2.5 4.5 4.4 4.0 4.2
Developing Asia excluding the PRC 5.9 5.3 5.4 5.3 5.0 4.1 6.6 6.7 5.5 6.0

Caucasus and Central Asia 5.7 3.9 4.8 4.2 4.2 8.9 11.5 12.5 8.5 8.5
Kazakhstan 4.3 3.0 3.0 3.7 3.7 8.0 11.2 14.0 7.5 8.2
East Asia 7.7 3.2 2.9 4.2 4.0 1.1 2.5 2.4 2.5 2.4
Hong Kong, China 6.3 0.2 –3.3 3.7 2.9 1.6 2.0 2.0 2.0 2.0
People’s Republic of China 8.1 3.3 3.0 4.5 4.3 0.9 2.3 2.1 2.5 2.3
Republic of Korea 4.1 2.6 2.6 2.3 1.5 2.5 4.5 5.1 3.0 3.2
Taipei,China 6.6 3.4 3.4 3.0 3.0 2.0 2.8 2.8 2.0 2.0
South Asia 8.1 6.5 6.5 6.5 6.3 5.8 8.1 8.2 7.4 7.9
India 8.7 7.0 7.0 7.2 7.2 5.5 6.7 6.7 5.8 5.8
Southeast Asia 3.3 5.1 5.5 5.0 4.7 2.0 5.2 5.1 4.1 4.5
Indonesia 3.7 5.4 5.4 5.0 4.8 1.6 4.6 4.2 5.1 5.0
Malaysia 3.1 6.0 7.3 4.7 4.3 2.5 2.7 3.0 2.5 3.0
Philippines 5.7 6.5 7.4 6.3 6.0 3.9 5.3 5.7 4.3 4.3
Singapore 7.6 3.7 3.3 3.0 2.3 2.3 5.5 6.0 2.3 5.5
Thailand 1.5 2.9 3.2 4.2 4.0 1.2 6.3 6.3 2.7 2.7
Viet Nam 2.6 6.5 7.5 6.7 6.3 1.8 3.8 3.5 4.0 4.5
The Pacific –1.7 4.7 5.3 5.5 4.8 3.1 6.2 5.8 4.8 5.0

ADO = Asian Development Outlook, ADOS = ADO Supplement, GDP = gross domestic product, PRC = People’s Republic of China.
Note: Developing Asia refers to the 46 developing members of the Asian Development Bank. Caucasus and Central Asia comprises Armenia, Azerbaijan, Georgia, Kazakhstan,
the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. East Asia comprises Hong Kong, China; Mongolia; the People’s Republic of China; the Republic of Korea; and
Taipei,China. South Asia comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Southeast Asia comprises Brunei Darussalam, Cambodia,
Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor–Leste, and Viet Nam. The Pacific comprises the Cook Islands, the
Federated States of Micronesia, Fiji, Kiribati, the Marshall Islands, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
Sources: Asian Development Bank. 2022. Asian Development Outlook 2022 Update; Asian Development Bank estimates.

Figure 7 GDP growth and inflation

Developing Asia can expect faster growth and lower inflation than in other regions.

2022 2023

% GDP growth % Inflation

5 30

4 24

3 18

2 12

1 6

0 0
Developing Asia Advanced Emerging and Latin America Sub-Saharan Developing Asia Advanced Emerging and Latin America Sub-Saharan
economies developing and the Africa economies developing and the Africa
Europe Caribbean Europe Caribbean
GDP = gross domestic product.
Source: Asian Development Outlook database; International Monetary Fund. World Economic Outlook Update October 2022 (accessed 7 December 2022).
 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT 7

Growth and inflation outlook 3.3% in the first 3 quarters of 2022. The markedly deteriorating
global economy will continue to be a major drag on exports
by subregion from Hong Kong, China. Further, fixed investment will remain
suppressed by tightened financial conditions, weaker economic
activity, and rising borrowing costs. On the upside, relaxed
East Asia testing and quarantine arrangements for visitors should boost
Growth forecasts for East Asia are revised down from 3.2% to service exports, while favorable labor market conditions
2.9% in 2022 as Hong Kong, China contracts and growth in the and a consumption voucher scheme will support domestic
PRC is weaker than expected, and from 4.2% to 4.0% in 2023 as consumption. Assuming that the pandemic remains under
weakness persists in the PRC and deepens in the ROK. control and COVID-19 restrictions are relaxed further, economic
activity is expected to return gradually to normal. Factoring in
In the PRC, GDP expanded by 3.0% in the first 3 quarters of base effects, this Supplement downgrades the Update growth
2022, driven primarily by infrastructure investment and solid forecast to 3.3% contraction in 2022 and 2.9% growth in 2023.
external trade, while stress in the property market continued
to drag on growth. Affected by COVID-19 lockdowns, services The ROK economy, having grown by 3.0% year on year from
and household consumption recovered only gradually. In the January to September 2022, is expected to expand more slowly
first 3 quarters of 2022, growth in services continued to lag in Q4. The external sector has been buffeted by a slowing global
expansion in manufacturing. During the first 10 months of economy, with growth in exports year on year slipping in October
2022, value added in industry grew by 4.0%, while real growth in to its lowest rate in 2 years. The global slowdown, elevated energy
retail sales is estimated to have contracted by 2.2% because of prices, supply disruption, and higher interest rates will slow
COVID-19 restrictions. During the same period, nominal fixed growth to about its pre-pandemic average of 2.6% in 2022 and
asset investment grew by 5.8% as manufacturing investment further to 1.5% in 2023.
expanded by 9.7% and infrastructure investment by 8.7%, while
a stressed property market dragged real estate investment GDP growth in Taipei,China picked up to 4.1% year on year in
down by 8.8%. External trade growth remained solid despite Q3. Private consumption grew by 7.5% as COVID-19 restrictions
a moderating trend, with merchandise exports expanding by were relaxed and as government efforts to stimulate domestic
11.1% and imports by 3.5%. tourism encouraged travel and spending. Investment grew by
only 0.9% as firms likely chose to defer capital expenditure as
Recovery in the PRC in Q3 2022 was followed by a general global uncertainty mounted. Export growth was likewise sluggish
softening of economic activity in October, and a pickup in new at 1.4%, reflecting weaker global demand. Imports grew by 1.2%,
COVID-19 cases in November triggered renewed restrictions, such that net exports contributed a mere 0.3 percentage points
once again dragging on recovery in household demand and to growth. This brought growth year on year in the first 3 quarters
services. Looking ahead, property will continue to weigh on of 2022 to 3.6%. Exports are forecast to remain weak. Private
economic recovery as that market has yet to stabilize and consumption will likely soften gradually with government stimulus
recent support measures will need time to take effect. To shore scheduled to end in June 2023. Recent developments have
up economic growth, the government approved additional been broadly in line with expectations in the Update, so growth
infrastructure funding in Q3 2022. In addition, fiscal outlays may forecasts are maintained at 3.4% in 2022 and 3.0% in 2023.
further increase in Q4 2022 to support growth. Yet weakening
growth means a GDP growth forecast for 2022 reduced by Inflation forecasts for East Asia are revised down from 2.5%
0.3 percentage points from the Update to 3.0%, and for 2023 to 2.4% for both 2022 and 2023, mainly on account of the
reduced by 0.2 points to 4.3% given the slowdown in the downward adjustments for the PRC. Consumer prices in the PRC
major economies. increased by an average of 2.0% year on year in the first 9 months
of 2022. Nonfood inflation was 2.0% on average, mainly reflecting
Contraction in Hong Kong, China deepened to 4.5% year on higher fuel prices. Food prices increased on average by 2.1%
year in Q3. Tightened financial conditions weighed heavily on on rising pork prices. Producer prices rose by 6.0% on average,
domestic demand, widening contraction in fixed investment driven primarily by higher commodity and energy prices. Inflation
to 14.3% in the quarter and stalling private consumption. The forecasts for the PRC are trimmed by 0.2 percentage points, to
worsened external environment and continued disruption to 2.1% in 2022 and 2.3% in 2023, in line with lower GDP growth.
cargo flows across PRC land portals dealt a serious blow to
external demand, with goods exports plummeting by 15.6% Headline inflation in Hong Kong, China surged from 1.9% year
and service exports slipping by 3.8%. Real GDP contracted by on year in August to 4.4% in September on a base effect caused
by the housing authority having waived public housing rent in
8 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT

September 2021. While import prices will continue to rise in In Bangladesh, the GDP growth projection for FY2023 (ending 30
line with high inflation in many major economies, largely mild June 2023) is adjusted down on account of dampened exports and
domestic cost pressures should help keep overall inflation a widening trade deficit, continued high inflation and shortages
moderate in the near term. This Supplement maintains the Update of electric power and other energy, subdued remittances, and
inflation forecast of 2.0% for 2022 and 2023. austerity measures adopted by the government to narrow a
large financing gap. Risk to the forecast is on the downside, from
In the ROK, inflation accelerated more than expected to average declining global growth, particularly in Europe and the US.
5.1% in the year to October—well above the 2.0% target. Higher
prices for oil, food, and personal services have been the primary In Maldives, the Update forecast for 2022 is revised up but the
drivers of inflation. The Bank of Korea has raised its policy rate 2023 forecast is lowered. Tourist arrivals were strong from January
by a total of 250 basis points since July 2021 to contain inflation. to October 2022, growing by 33% year on year. Construction also
Notwithstanding monetary tightening, forecasts for inflation are started to pick up in the first 3 quarters of 2022, as indicated by a
raised as inflation in the year to date is high and shows few signs 72% increase in imports of construction goods, and will increase
of abating soon. further in the final quarter of 2022. Construction is projected to
slow in 2023, however, as the government starts to implement
Inflation in Taipei,China reached 3.6% in June 2022 but gradually some fiscal consolidation.
came down to 2.7% in October. With global supply chain
bottlenecks easing and commodity prices expected to continue The Pakistani outlook for FY2023 (ending 30 June 2023) has
downward, inflation forecasts are maintained at 2.8% in 2022 and deteriorated under heavy flooding that began in mid-June. The
2.0% in 2023. economy was already struggling to regain macroeconomic and
fiscal stability before the floods, which have adversely affected
cotton, rice, and other important crops. As wheat is usually
South Asia planted from mid-October, flood damage threatens the upcoming
agricultural season as well. Further, the flooding is expected
South Asia is on track to meet the Update growth forecast of 6.5%
to have spillover effects on industry, notably textiles and food
in 2022, but the forecast for 2023 is downgraded slightly from
processing, and on services, in particular wholesale trade and
6.5% to 6.3%. The subregional revision for 2023 largely reflects
transportation. Flood disruption and damage are expected to slow
lower forecasts for Bangladesh and Pakistan. In Bangladesh,
real GDP growth in combination with a tight monetary stance, high
recovery is hampered by external imbalances and unexpectedly
inflation, and an unconducive global environment.
high inflation. In Pakistan, floods that began in mid-June have
dampened economic activity already affected by stabilization
Elsewhere in South Asia, economies are on track to meet
efforts to tackle sizable fiscal and external imbalances and double-
previous projections. In Bhutan, agriculture is set to expand on
digit inflation.
better weather, and construction is expected to ensure growth
in industry. Service growth will be lower than earlier expected
In India, the economy grew by 6.3% in Q2 of fiscal year 2022
following a tripling in June 2022 of the sustainable development
(FY2022, ending 31 March 2023), reflecting contraction in public
fee, a daily tariff on visitors, to $200 per head. This could dampen
consumption of 4.4% even as exports grew by 11.5% despite the
service growth in 2023 as effects spin off on other businesses
global slowdown. On the supply side, growth was led by service
dependent on tourism.
sector growth at 9.3%, contributing 4.6 percentage points to GDP
growth. Industry, by contrast, suffered a small contraction by
The official GDP growth estimate for Nepal in FY2022 (ended
0.8%, dragged down by contraction in manufacturing and mining.
16 July 2022) meets the Update forecast, and growth prospects
Despite recent global headwinds, the Indian economy is expected
for FY2023 remain in line with the projection, with domestic
to grow by 7.0%, as projected in the Update, supported by a strong
demand stymied by tight monetary policy implemented to stem
domestic base. While some recent high-frequency indicators are
inflation and rising imports, which have depleted foreign exchange
more favorable than expected—notably consumer confidence,
reserves. Fiscal policy enunciated in the budget speech for 2023
electricity supply, and purchasing managers’ indexes—others are
is somewhat expansionary, aiming to strengthen agriculture,
a little less favorable, in particular exports, largely textiles and iron
industry, infrastructure development, and social protection.
ore, and the index of industrial production of consumer goods. The
growth forecast for FY2023 is unchanged at 7.2%, sustained by
Sri Lanka saw GDP contract by 1.6% year on year in Q1 2022
positive effects from structural reform and from public investment
and by 8.4% in Q2 as supply chain disruption and shortages of
catalyzing private investment.
essentials stemmed from an acute foreign exchange shortage and
 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT 9

a consequent energy crisis. Industry led the decline with 10.0% is raised in line with recent data showing inflation in its first 3
contraction in Q2, as agriculture shrank by 8.4% under fallout months to mid-October averaging 8.5% year on year, up from 4.0%
from a temporary ban on chemical fertilizers, but every major a year earlier.
sector declined as the economy shrank by 4.8% in the first half of
the year. The pace of deterioration slowed considerably in Q3 as
the availability and management of essential supplies improved Southeast Asia
somewhat. Import restrictions on food, medicine, and essential
The GDP growth forecast for Southeast Asia in 2022 is revised up
raw materials were relaxed in stages. Factoring in forward-looking
to 5.5% thanks to higher forecasts for Malaysia, the Philippines,
indicators, Update forecasts for GDP contraction in 2022 and
Thailand, Timor-Leste, and Viet Nam after surprisingly robust
2023 are retained. Contraction could exceed forecasts, though,
Q3 performances. Stronger consumption, exports, and services,
as significant downside risks include drawn-out debt restructuring
particularly for tourism, lifted growth forecasts for these
negotiations with creditor holdouts, a possible bank crisis, a fragile
economies. However, these growth rates are unlikely to be
political environment, and global headwinds.
maintained as global demand weakens. Forecasts for Indonesia,
Malaysia, the Philippines, Singapore, Thailand, and Viet Nam
With the change in the government in Afghanistan in August 2021,
are adjusted down to 4.7% in 2023. Consumer and business
the country faced distinctly reduced levels of international aid,
confidence are likely to be affected by high inflation and rising
public revenues, and inward remittances. The share of agriculture
interest rates, while government spending may be curtailed under
in GDP increased as more people returned to subsistence farming
constrained public finances.
due to reduced employment opportunities in industry and
services. The economic and political situation in Afghanistan is
Global economic volatility has not held back growth in Indonesia.
likely to remain difficult in the foreseeable future. In the short
Real GDP grew by 5.7% in Q3, broadly in line with expectations
term, international aid is likely to be limited to humanitarian
in the Update and supporting the 5.4% projection for the full
activities and basic human needs comprising education, health
year. However, worsening headwinds point to growth slowing to
care, nutrition, and community-based livelihood support.¹
4.8% in 2023, lower than 5.0% projected in the Update. So far in
2022, private consumption has continued to grow above its pre-
The inflation projection for South Asia is increased marginally for
pandemic trend rate, and investment has picked up. Together,
2022 from 8.1% to 8.2% and more substantially for 2023 from 7.4%
they more than offset a fall in public spending. An export boom
to 7.9%. The subregional revision for 2023 largely reflects higher
continues on strong demand for primary commodities. Exports of
inflation forecasts for Bangladesh, Nepal, Pakistan, and Sri Lanka.
services have also grown quickly as tourist arrivals recovered. In
Inflation forecasts for elsewhere in the subregion in 2023 remain
2023, growth will be held back by slowing exports of goods as the
unchanged. Inflation in India is still expected to rise to 6.7% in
advanced economies weaken, private consumption returning to
FY2022 before falling back to 5.8%.
trend growth, and tightening fiscal and monetary policy.
Inflation forecasts for Sri Lanka are revised up for both 2022 and
Malaysia recorded robust growth in 2022, surpassing expectations
2023, reflecting persistent market shortages, contractionary fiscal
with a double-digit growth at 14.2% in Q3. While some of
policy, intensifying external pressures, and higher global energy
this reflects weakness in Q3 2021, growth was driven as well
and food prices. The FY2023 forecast for Pakistan is revised up
by strengthening in most components of domestic demand
to reflect a weaker currency, higher domestic energy prices, and
as the economy continued to normalize. Domestic demand
flood-related crop and livestock losses and supply disruption,
was supported by improved labor market conditions, with the
which have caused transitory food shortages and price spikes.
unemployment rate improving from 4.3% at the end of 2021 to
Transportation difficulties have exacerbated these shortages and
3.7% in Q3 2022. In addition, policy measures such as a minimum
disrupted other domestic supply chains, broadening inflationary
wage increase and the Bantuan Keluarga Malaysia cash aid
pressures and imposing production challenges. The FY2023
program stimulated household consumption. Easing mobility
forecast for inflation in Bangladesh is sharply raised to account for
restrictions and border reopening in April 2022 spurred consumer
several factors: a worsening outlook for agriculture following losses
and leisure spending, which reinvigorated the service sector.
from flash floods and Cyclone Sitrang; the effects of currency
Following unexpected and substantial growth in Q3, the 2022
depreciation on prices for imported products; rising global prices
growth forecast is upgraded from 6.0% to 7.3%. Meanwhile, the
for food, fuel, fertilizer, and other commodities; administered
2023 forecast is downgraded from 4.7% to 4.3% in light of subdued
oil and natural gas price hikes; and expected increases in retail
global conditions.
electricity prices. Turning to Nepal, the FY2023 inflation forecast

¹ ADB placed on hold its assistance in Afghanistan effective 15 August 2021. ADB Statement on Afghanistan | Asian Development Bank
(10 November 2021).
10 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT

The 2022 growth forecast for the Philippines is revised up after Many Southeast Asian central banks have raised policy rates in
domestic demand spurred Q3 growth above expectations. GDP response to rising global interest rates, capital outflows, currency
grew by 7.7% in the first 3 quarters of this year, driven by robust depreciation, and accelerating inflation with higher global food
private consumption and investment and by sustained public and energy prices. The inflation forecast for Southeast Asia in
infrastructure spending. Rising employment, tourism recovery, 2022 is revised down slightly as lower forecasts for Indonesia
expanding production and retail sales, and public investment will and Viet Nam are offset by higher forecasts for Malaysia, the
continue to support growth. The GDP growth forecast for 2023 Philippines, and Singapore. However, the subregional inflation
is revised down to accommodate monetary tightening, a sharper forecast is revised up for 2023 as imported inflation is expected
growth slowdown in the advanced economies, and continuing to remain significant for some time. Double-digit inflation in
uncertainty arising from the Russian invasion of Ukraine. the Lao People’s Democratic Republic and Myanmar is foreseen
continuing in 2023, aggravated by weaker currencies and external
Singapore’s economy grew by 4.1% in Q3 2022, for GDP imbalances. Inflationary pressures are likely to come from further
grow by 4.2% in the first 3 quarters, supported by services currency weakness over the coming months as the US Fed
and construction. The expansion in construction accelerated continues to hike interest rates.
as easing border restrictions facilitated the inflow of migrant
workers. In contrast, manufacturing slowed on a drop in output Inflation in Indonesia is now projected to average 4.2% in 2022,
of electronics and chemicals. The manufacturing PMI in October lower than in the Update but above the central bank target of
2022 signaled contraction, and business sentiment remained 2%–4%. For the same reasons—output below full potential, ample
negative. Heightened global inflation and tightening financial supplies holding down food prices, steady inflation expectations,
conditions will weigh on demand for financial services and and the central bank having started a preemptive round of policy
weaken growth prospects in the financial sector. The pace of rate increases—the inflation projection for 2023 is revised down
consumer spending is likely to moderate as high inflation and the marginally to 5.0%.
uncertain economic environment dampen consumer sentiment.
GDP growth forecasts are revised down to 3.3% for 2022 and Inflation forecasts for Malaysia are raised to 3.0% for 2022 and
2.3% for 2023. 2023 as food and transportation prices have become elevated
with stronger demand and pressures on supply. Also contributing
Thailand accelerated in Q3 mainly on a surge in service exports to inflation are lockdowns in the PRC, adverse weather in key
with the return of international tourists. Private consumption food-exporting countries, and a stronger US dollar buoyed by
and private investment also expanded. Exports of goods were increased interest rates. Inflation forecasts for this year and next
buoyed by strong demand for most major export products: in Singapore are also higher than in the Update in September, with
integrated circuits, air conditioners, pickups and other trucks, higher costs for materials and utilities under renewed contracts
electrical appliance parts, machinery, sugar, and chilled, fresh, foreseen continuing to pass through to consumer prices into 2023.
and prepared chicken. GDP forecasts are revised up from 2.9% Also keeping inflation elevated is a planned hike in the goods and
to 3.2% for 2022 but revised down from 4.2% to 4.0% for 2023 as services tax in January 2023. Inflation forecasts for the Philippines
weaker demand from the rest of the world weighs on exports. are raised for 2022, mainly in response to higher food prices, but
maintained for 2023. In Viet Nam, inflation averaged 3.0% from
A strong performance across sectors boosted Viet Nam, January to November, kept in check by price controls on essential
whose economy expanded by 8.8% in the first 3 quarters of commodities. However, recent weakness in the local currency
2022. Economic activity rebounded following the removal of against the US dollar and a central bank policy rate hike signal rising
COVID-19 restrictions and the achievement of nationwide inflationary pressures, which are expected to continue into 2023.
vaccine coverage. International tourist arrivals reached 2.4 Inflation forecasts are lowered to 3.5% for 2022 but raised to 4.5%
million in the period from January to October. With these for 2023.
developments, the growth forecast for 2022 is adjusted up to
7.5%. While trade continues to expand, signs show weakening
global demand for the country’s exports. The manufacturing Caucasus and Central Asia
PMI dipped from 50.6 in October to 47.4 in November, and
The subregional growth projection for the Caucasus and Central
employment was down for the first time in 8 months. Little
Asia in 2022 is raised from 3.9% in the Update to 4.8% in this
liquidity is left for economic recovery after recent monetary
Supplement, while the projection for 2023 remains unchanged at
tightening, a decline in corporate debt issuance from January to
4.2%. The upward adjustment for 2022 reflects robust growth in
October, and a slowdown in disbursement of public investment.
many economies in the subregion as spillover from the Russian
The growth forecast for 2023 is therefore adjusted down from
invasion of Ukraine has so far been benign. The Russian economy
6.7% to 6.3% as major trade partners weaken.
 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT 11

has fared better than expected, and exports to the Russian by rising food prices as supplies from the Russian Federation and
Federation from economies in the subregion have continued Ukraine were disrupted, as well as by price hikes in the country’s
to be strong. Hydrocarbon exporters have benefited from high trade partners. In the year to October, Georgia saw inflation
energy prices, and several subregional economies have benefited average 12.4% as stronger tourism and multiple waves of Russian
from inflows of people and money from the Russian Federation. migrants stimulated domestic demand, sparking price hikes
including for locally produced goods; Kazakhstan’s inflation rate
Armenia saw a significant increase in private consumption, accelerated to 13.9% as supply chain disruption from food export
especially for services, with a large influx of Russian citizens and bans imposed by the Russian Federation left staple foods in short
businesspeople. The economy grew by a strong 12.6% year on supply and pushed up domestic prices; sharp increases in food
year in the first 9 months of 2022. Double-digit growth continued and energy prices in the Kyrgyz Republic lifted inflation there to
as well in Georgia, reaching 10.2% in September. As in Armenia, 13.7%; and inflation in Uzbekistan accelerated to 11.2% as the
growth in Georgia was stimulated by strong consumer spending liberalization of administered prices for domestic wheat brought
mainly owing to arrivals from the Russian Federation. Inward higher prices for flour and bread. Contrary to the upward trend
money transfers surged by 65% to September, with the amount observed in other subregional economies, the average inflation
received from the Russian Federation quadrupling. As Russian rate in Tajikistan decelerated to 5.7% in the first 9 months of 2022
migrants arrived, receipts from tourism recovered to approach a as discouragement of agricultural exports exerted downward
record high set in 2019. pressure on farmgate prices.

In January–October 2022, the Kyrgyz Republic expanded by

7.0%, benefiting again from inflows of tourists, workers, and firms The Pacific
from the Russian Federation, especially after the announcement
Economic growth in the Pacific is now expected to reach 5.3% in
on 22 September of a military draft in the Russian Federation, and
2022, up from 4.7% forecast in the Update. This largely reflects
from significant money transfers that fueled consumption. In the
an upward adjustment to the outlook for Fiji as visitor arrivals
first 9 months of 2022, Uzbekistan grew by 5.8% as the primary
outperform expectations and a smaller contraction estimate for
income surplus expanded by a factor of 2.5 with the arrival of
the Marshall Islands in FY2022 (ended 30 September 2022, as in
seasonal migrant workers; Azerbaijan grew by 5.6%, reflecting
Palau) because data indicate less impact from the pandemic than
high growth in construction, manufacturing, and services; and
anticipated. Palau is estimated to have remained in contraction in
Tajikistan expanded by 7.8%, with industry as a primary driver of
FY2022 because visitor arrivals fell below adjusted expectations.
growth. Growth in Turkmenistan appears to have benefited from
Contraction in Samoa in FY2022 (ended 30 June 2022, as in
buoyant gas exports.
Tonga) exceeded projections as output continued to decline
across many segments of the economy, and a larger contraction
Notwithstanding its close economic links with the Russian
is estimated for Tonga in FY2022 as recent high inflation has
Federation, Kazakhstan, the subregion’s largest economy, grew by
depressed the real value of economic output.
a modest 2.8% in the first 3 quarters of 2022. Continuing repairs
to the Caspian Pipeline Consortium oil export route through
The subregional growth projection for 2023 is revised down from
the Russian Federation restricted petroleum exports. As of early
5.5% in the Update to 4.8%. More moderate growth is seen in Fiji
November 2022, the consortium was operating at a reduced
as some expansion is already being realized in 2022, and as high
capacity of 60%. Accordingly, this Supplement refrains from
inflation mutes Tonga’s recovery prospects. However, recovery is
upwardly adjusting Update growth projections of 3.0% for 2022
now expected in the Marshall Islands given the current trajectory
and 3.7% for 2023.
of the economy and border opening in September 2022.
The subregional inflation projection for 2022 is raised from
Subregional inflation is now forecast at 5.8% in 2022, down
11.5% in the Update to 12.5%. The forecast for 2023 remains
from 6.2% in the Update. The projection for Papua New Guinea
unchanged at 8.5%. Inflation persisted in many economies in the
is revised down as data show that prices rose more slowly than
subregion, mainly reflecting high food prices since the Russian
projected in the first half of the year. Inflation in the Marshall
invasion of Ukraine and buoyant domestic demand.
Islands was also much slower than expected in the first 9 months
of FY2022, lowering the estimate for the full year. The inflation
Average annual inflation in Armenia in January–October 2022
forecast for 2023 is now raised from 4.8% to 5.0% on raised
was 8.7%, buoyed by 12.9% inflation for food. Inflation in
inflation expectations in the Cook Islands, Samoa, and Tonga.
Azerbaijan rose to 13.4% in the year to September, also driven
12 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT

Box Global assumptions

Growth in the major advanced economies this year will be Growth in the US is forecast at 1.7% in 2022 before slowing
slightly higher than anticipated in the September Update. sharply to 0.4% in 2023. The latest data suggest weaker
Stronger-than-expected third quarter (Q3) outturns were prospects for investment and consumption under tighter
driven by net exports in the US and robust domestic demand financial conditions. Investment prospects remain dim as
in the euro area. In Japan, revived inbound tourism following the Institute for Supply Management’s ISM manufacturing
reopening in September partly offset a deteriorating trade index fell further from 50.2 in October to 49.0 in November,
balance. Nevertheless, the outlook for the United States and indicating weaker manufacturing in Q4. Consumer confidence
the euro area next year remains bleak under persistently high also fell, from 98.9 in October to 96.9 in November,
inflation and tightening financial conditions. In aggregate, the indicating less consumption growth. However, earnings
major advanced economies are now expected to grow by 2.2% continue to grow as the labor market remains robust. The
in 2022 and just 0.4% in 2023 (box table). unemployment rate has hovered at 3.5%–3.7% since March.

US inflation will likely remain elevated this year at 8.0% but

Baseline assumptions on the international econonomy is expected to moderate to 3.2% in 2023. Inflation remained
high at 7.7% in October, driven mainly by high food and
2021 2022 2023 energy prices, but core inflation at 6.3% was also a concern.
Actual September December September December Service inflation continues to edge up, mainly on higher rent.
Update ADOS Update ADOS
To curb inflation, the federal funds rate was again increased by
GDP growth, % 75 basis points in November, bringing policy rates to a range
Major advanced 5.1 1.9 2.2 1.0 0.4 of 3.75%–4.00%.
economies
United States 5.9 1.6 1.7 1.0 0.4 The euro area has been unexpectedly resilient but is likely
Euro area 5.3 2.5 3.0 0.7 0.1 to contract in Q4 under weak manufacturing and services.
GDP growth surprised on the upside in Q3, coming in at
Japan 1.7 1.4 1.4 1.6 1.3
0.7% in seasonally adjusted annualized terms thanks to robust
Prices and inflation domestic demand. However, leading indicators suggest
Brent crude spot 70.44 106.00 100.00 95.00 95.00 the economy is on the cusp of recession. The composite
prices, average, purchasing managers’ index (PMI) fell in October deeper into
$/barrel contractionary territory and a 23-month low of 47.1. The
CPI inflation, 3.3 7.2 7.4 3.0 2.5 manufacturing output index plunged to a 29-month low of
major advanced 44.2 as factory output declined for a fifth consecutive month,
economies’ average,
dragged down by manufacturers highly dependent on energy.
%
The service PMI also fell, to 48.2 and its lowest reading in
ADO = Asian Development Outlook, ADOS = ADO Supplement, CPI = consumer 20 months. Meanwhile, the economic sentiment indicator
price index, GDP = gross domestic product.
dropped to 92.5, its lowest reading since November 2020 and
Note: Average growth rates and inflation are weighed by GDP purchasing power
parity. well below its long-term average of 100. Souring sentiment
Sources: Bloomberg; CEIC Data Company; Haver Analytics; IMF World Economic reflected marked deterioration in service and manufacturing
Outlook; Asian Development Bank estimates. business confidence.

The euro area GDP growth forecast is raised to 3.0% in 2022

The US expanded in Q3 2022 by 2.9% quarter on quarter in but then trimmed to only 0.1% in 2023. The upward revision
seasonally adjusted annualized terms. Net trade contributed for 2022 reflects the unexpectedly strong outturn in Q3.
2.9 percentage points to Q3 growth as exports expanded by Economic activity is seen weakening in the remainder of
15.3% while imports contracted by 7.3%. The contribution of this year and into next year, owing to high inflation, a more
consumption fell from 1.4 points in Q2 to 1.2 points in Q3 restrictive monetary policy, and a weaker global economy.
because of higher prices and tighter liquidity. Government
spending contributed 0.5 points as overall spending grew by Euro area inflation forecasts are revised up to 8.3% in 2022
3.0% in the quarter. Investment dragged on gross domestic and 4.5% in 2023. This reflects broadening price pressures
product (GDP) growth as it fell by 9.1% in the quarter, underpinned by soaring energy and food prices. The European
subtracting 1.7 points. Central Bank hiked its key interest rates by another 75 basis

continued on next page

 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT 13

Box 1 Continued

points in October and signaled that the tightening cycle is not producers (OPEC+) took effect, the US dollar fell, and news
over. Downside risks stem from uncertainty regarding possible spread of a more relaxed COVID-19 policy in the People’s
energy supply shortages and more aggressive monetary policy Republic of China (PRC). However, oil prices began to fall
tightening, which could worsen financial conditions and debt in the third week of November as news of rising COVID-19
sustainability issues. cases in the PRC brought to the fore a global recession
narrative. The expected rise in oil prices as a result of the EU’s
The Japanese economy was resilient in Q3 2022 despite the ban on seaborne imports of Russian Federation crude oil did
global slowdown. Domestic private demand continued to not occur, and crude oil prices fell to $78/barrel in December,
pick up at a gradual pace. However, a significant increase in the lowest since the beginning of the year. Brent crude oil
imports dragged on growth in the period even though a revival traded at about $75/barrel on 8 December.
in inbound travel after Japan’s reopening in September had
mitigated trade balance deterioration. The growth outlook for The forecast for oil prices in 2022 is revised down to $100/
2022 remains at 1.4%. barrel. The International Energy Agency identified several
market headwinds weighing heavily on oil consumption: a
Net exports from Japan are forecast to recover late in 2023 persistently weak economy in the PRC, Europe’s energy crisis,
as a weak yen boosts goods exports and inbound travel. and a strong US dollar. Growth in oil consumption slowed in
Supported by high savings and moderate wage growth, Q3 2022 to 1.0% year on year, down from an average of 3.7%
household consumption will hold up despite rising inflation. in the first half of the year. It is now expected to contract by
The growth outlook is nevertheless downgraded from 1.6% about 0.2% in Q4 2022.
in the Update to 1.3% because higher input prices will dwarf
the effects of existing government expenditure programs, The forecast for 2023 oil prices is retained at $95 per barrel.
and because rising long-term interest rates will dampen fixed While lower than in 2022, this is still significantly higher than
capital formation, including housing investment. the previous 5-year average of $60/barrel. The International
Energy Agency forecasts the oil market to be slightly in deficit
The inflation outlook for Japan remains at 2.1% in 2022 with supply constrained by sanctions against the Russian
but is revised up from 0.8% to 2.0% in 2023. Japan’s core Federation and by OPEC+ production cuts. However, price
consumer price index (CPI) is expected to peak at about 3.5% volatility remains high because global inventories are low. Key
with the end of 2022. As the government extended its gas risks to the outlook are new sanctions against the Russian
price cap subsidies and other energy price subsidies, higher Federation, a sharper-than-expected global economic
import prices will take longer to fully factor into the CPI. In slowdown, and OPEC+ quota changes.
the second half of 2023, the core CPI will fall to 1.0%–2.0%
as stabilizing international commodity prices are reflected in
domestic prices and the effect of a weakening yen fades. This box was written by Matteo Lanzafame, Yuho Myoda, Pilipinas
Quising, Arief Ramayandi, and Dennis Sorino of the Economic
Research and Regional Cooperation Department (ERCD),
Brent crude prices remained volatile. Oil prices rose in the first
Asian Development Bank, Manila, and Michael Timbang,
2 weeks of November as production cuts by the Organization ERCD consultant.
of the Petroleum Exporting Countries and other major oil
14 ASIAN DEVELOPMENT OUTLOOK SUPPLEMENT

Asian Development Outlook Supplement

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