Asia’s Economic Sustainability Under Threat
In a stark revelation, the World Bank has painted a grim economic outlook for Asia, questioning the region’s economic sustainability. It’s also cautioning that Asia is on the cusp of experiencing one of its worst economic downturns in half a century. The bank identified the primary culprits behind this impending crisis: US protectionism and escalating debt levels. According to it, these factors are collectively exerting a drag on the economic growth of developing economies in East Asia.
China’s Downturn and Its Ripple Effect on Asia
Moreover, the World Bank slashed forecasts for China’s growth in the upcoming year. That further underscored growing concerns about China’s economic slowdown and its potential spill-over effects across Asia. China, the world’s second-largest economy, has set one of its lowest growth targets in decades for the year 2023, aiming for a meagre 5 per cent growth rate.
Reduced Growth Projections for China and the Region
The World Bank has revised its 2024 growth forecasts for the country. It now anticipates a meagre 4.4 per cent expansion, a significant drop from the 4.8 per cent predicted earlier in April. Moreover, the growth projections for developing economies in East Asia and the Pacific, which encompasses China, have been downgraded to 4.5 per cent. That also reflects the region’s slowest growth pace since the late 1960s. Even if we exclude extraordinary events such as the coronavirus pandemic and previous economic crises, the reports are troubling.
Challenges and the Call for Reforms
Economists emphasize the need for deeper service sector reforms to combat the persisting slower growth. They also underscore that for many developing Asian economies, transitioning from property- and investment-led growth to service sector reforms has proven to be a formidable challenge. Achieving economic sustainability amid these challenges necessitates strategic policy changes.
US Policies and Their Impact on Asia
The recently implemented Inflation Reduction Act (IRA) and Chips and Science Act in the United States have initiated a dramatic shift. For years, US-China trade tensions favoured Southeast Asian countries by diverting trade demand away from China. However, the new policies have caused a decline in exports of affected products from Southeast Asian countries to the US.
Efforts to Mitigate Impact and Secure Growth
In light of these changes, several Southeast Asian countries are responding with urgency. Indonesia is rich in critical minerals like nickel essential for electric vehicle batteries. And it is now advocating for fair treatment in US subsidies for green technology. Vietnam, too, is urging the extension of electric vehicle tax credit benefits, striving to reinvigorate its trade relationship with the US.
In essence, these alarming forecasts highlight the pressing need for Asian economies to swiftly adopt strategic reforms and find alternative routes for growth amid this looming economic crisis. Time is of the essence for countries in the region to protect their economic interests and forge resilient pathways towards economic sustainability to mitigate the pure economic loss caused by this challenging scenario.