5 key APAC economies will drive global growth in 2023: Euromonitor

China, India, Indonesia, Vietnam, and the Philippines lead the way in outpacing global growth despite elevated inflation and economic uncertainty.

Amidst an economic landscape characterised by elevated inflation and increasing interest rates, Asia-Pacific economies are expected to lead global growth in 2023, according to Maxim Hofer, Euromonitor’s senior consultant on economies.

Interviewed by Asian Business Review, Hofer explained how five key economies in the region – China, India, Indonesia, the Philippines, and Vietnam – are set to achieve a combined average growth of 5.4% in real GDP. This figure more than doubles the global growth rate for 2023 and highlights the resilience of these emerging markets.

New economic reality and global inflation

Hofer said the expected average global inflation rate for 2023 is 6.9%, a decline from the previous year’s 9%. This decline is primarily attributed to slowing demand, rising interest rates, and loss of purchasing power.

“In advanced economies, you have tight labour markets, which create wage growth pressures, especially in the services sector. And that results in high inflation, excluding food and energy,” said Hofer.

“And then you have geopolitical tensions resulting in a reset of globalization,” he added. This results in major disruptions like the further vulnerability of supply chains and higher costs in the operating environment of the business.

High commodity prices in emerging markets, particularly in Asia, are contributing to elevated inflation. These high prices are driven by factors such as food and energy price increases following the war in Ukraine, ongoing supply disruptions, uncertainties, as well as the impact of African swine fever in China and extreme weather events affecting food production in the Asia Pacific region.

Despite the challenges, the Asia Pacific region continues to forge ahead, with certain economies maintaining their growth even during the height of the pandemic. Hofer noted that China and Vietnam, for example, experienced economic growth in 2020.

Importance of scenario planning

In light of the new economic reality, Hofer emphasised the importance of scenario planning and resilience for businesses to navigate challenges and uncertainties. He stated that businesses should understand the different macroeconomic scenarios and prepare accordingly, building buffers and supply chains with higher optionality.

“Resilience means that you, you are prepared for different shocks, so that you have an understanding of what could go wrong for your business and, and prepare accordingly, meaning that you build buffers, you build supply chains, with higher optionality,” Hofer explained.

Asia-Pacific growth drivers

The growth in the Asia Pacific region is driven by several factors, including rising incomes, which fuel domestic demand, significant government spending on infrastructure projects, and investment growth.

Additionally, these economies are supported by economic policies that underpin their development.

Hofer highlighted the significance of these emerging market economies in the global landscape, telling the Asian Business Review: “You have significant emerging market economies, especially in Asia Pacific that really maintain their strength in global growth, whereas advanced economies are really sluggish in terms of growth this year.”

The advanced economies, in this case, the US and the Eurozone, are seeing a significant slowdown this year, because of high-interest rates, and high inflation. The potential spillover effects of this slowdown on the Asia Pacific region include lower demand for goods from Asia Pacific, weighing on commodities and manufacturing exporters in the region. However, major economies in the Asia Pacific, especially China, India, Indonesia, the Philippines and Vietnam will maintain significant growth momentum nonetheless, supported by China's reopening and pent-up demand.

The robust growth of the Asia Pacific region’s key economies, on the other hand, is observed amidst economic uncertainty. Showcasing this resilience and adaptability are China, India, Indonesia, the Philippines and Vietnam which, as a group, would average 5.4% growth in real GDP.

“That’s significant,” Hofer said. “It is more than double the global growth rate for 2023.”

The success of these emerging markets provides a beacon of hope and a testament to the importance of agility, resilience, and proactive planning in times of uncertainty.

Hofer said that businesses looking to thrive in this new economic reality should take note of the importance of scenario planning, agility, and resilience, as demonstrated by these emerging market economies.