Asia’s economic recovery is losing momentum as tight financial conditions and weak external demand cause growth to slow down in most of the region. However, China and Thailand are expected to show higher growth in 2023 than last year, and the impact of these headwinds is expected to decrease gradually over the course of the year, leading to a return to decent growth levels next year. The ASEAN-5 economies, as well as India, have become more resilient to external shocks due to developments in the past two decades that have strengthened their economies and financial systems, making them more attractive for foreign investments. However, high household debt poses a risk for Thailand and South Korea.
While the Chinese economy is currently performing well, it is facing a structural growth slowdown due to factors such as an ageing population, a human capital mismatch, low productivity growth, supply chain changes, and geopolitical rivalry, putting it at risk of falling into the so-called middle-income trap.
One growing risk for Asia in the medium to long term is increasing geo-economic fragmentation, which could lead to potentially large economic losses, particularly for Asia. Although several Asian countries could benefit from supply chain diversification, far-reaching geo-economic fragmentation driven by geopolitical considerations is a cause for concern.