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Asia Pacific: Growth In 2023 Set To Be Slower Than 2022, Says Report

China is consolidating its gains from reopening and is likely to achieve its growth target of around five per cent for 2023

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The outlook for the Asia Pacific region is retained as ‘stable’ and growth in 2023 is set to be slower than in 2022, with the notable exceptions of Mainland China, Hong Kong SAR and Thailand, said Dun & Bradstreet (D&B) India in a report.

In its 'country risk and the global outlook- May 2023' report, D&B stated that China is consolidating its gains from reopening and is likely to achieve its growth target of around five per cent for 2023. 

The report stated, "China’s reopening and the clouded economic environment in the U.S. and Europe will set the tone for growth divergence in the region."

In the near term, economies closely levered to the Chinese economy will gain from the reopening boost, while those exporting heavily to European and U.S. markets will see a drag on external demand, it added.

"It is worth highlighting though, that beyond that, China’s growth dividends will be limited for the rest of the world," according to the report.

Notably, the economies of the Taiwan region, South Korea, Vietnam and Malaysia have all witnessed a slowdown in Q1 2023, accompanied by weak exports. The slowdown in Vietnam has even prompted the central bank to cut interest rates. 

Elsewhere, most central banks (except for Australia) have either hit the pause button or have given indications for one. Given our expectation of a potential US. 

Also, Fed pause following the 25-bps hike in May and economic weakness taking hold in the region, chances are that we could witness a swift pivot to rate cuts as early as the next quarter. 

The region’s banking sector has, thus far, proved resilient to the financial market turmoil witnessed in the US and Europe following the failures of First Republic Bank, Silicon Valley Bank, Signature Bank, and Credit Suisse; however, given the considerable global linkages in the financial system, a contagion in case of further distress cannot be ruled out. 

“Though the U.S. Federal Reserve (the Fed) and the European Central Bank (ECB) pushed ahead with a 25-bps hike in their latest meetings in May, we can expect rate hikes to pause, especially in the U.S. The ECB would have also paid heed to the financial tremors felt across the Atlantic and is expected to dial down the pace of rate increments," said Arun Singh, Global Chief Economist, Dun & Bradstreet.

Singh also mentioned that it is pertinent to remain vigilant against potential risks from the increase in crude oil prices, the probability of El Nino conditions creating droughts along with the increased global financial instability and unfavourable geopolitical developments.