ADB lowers growth forecast for South Asia

Asian Development Bank (ADB) has trimmed its growth forecast for the South Asian GDP in 2023 by 0.2 percentage point to 6.3 per cent due to slowdowns in Bangladesh and Pakistan.

ADB made the forecast in a regular supplement to the Asian Development Outlook (ADO) 2022 released Wednesday.

According to the outlook, the South Asian forecast for 2022 is maintained at 6.5 per cent but revised down marginally for 2023 from 6.5 per cent to 6.3 per cent following a slowdown in Bangladesh and flooding in Pakistan.

ADB said the sub-regional revision for 2023 largely reflects lower forecasts for Bangladesh and Pakistan. In Bangladesh, recovery is hampered by external imbalances and unexpectedly high inflation. In Pakistan, floods that began in mid-June have dampened economic activity already affected by stabilisation efforts to tackle sizable fiscal and external imbalances and double-digit inflation.

In Bangladesh, the GDP growth projection for FY2023 (ending 30 June 2023) is adjusted down on account of dampened exports and a widening trade deficit, continued high inflation and shortages of electric power and other energy, subdued remittances, and austerity measures adopted by the government to narrow a large financing gap.

Risk to the forecast is on the downside, from declining global growth, particularly in Europe and the US.

The inflation projection for South Asia is increased marginally for 2022 from 8.1 per cent to 8.2 per cent and more substantially for 2023 from 7.4 per cent to 7.9 per cent.

The sub-regional revision for 2023 largely reflects higher inflation forecasts for Bangladesh, Nepal, Pakistan, and Sri Lanka. Inflation forecasts for elsewhere in the sub-region in 2023 remain unchanged. Inflation in India is still expected to rise to 6.7 per cent in FY2022 before falling back to 5.8 per cent.

The FY2023 forecast for inflation in Bangladesh is sharply raised to account for several factors: a worsening outlook for agriculture following losses from flash floods and Cyclone Sitrang; the effects of currency depreciation on prices for imported products; rising global prices for food, fuel, fertiliser, and other commodities; administered oil and natural gas price hikes; and expected increases in retail electricity prices.

The region’s economy will grow 4.2 per cent this year and 4.6 per cent next year, ADB said in the outlook. Last September, ADB estimated that the economy would grow 4.3 per cent in 2022 and 4.9 per cent in 2023.

According to ADB, monetary policy tightening by central banks globally and in the region, the protracted Russian invasion of Ukraine, and recurring lockdowns in China are slowing down developing Asia’s recovery from the Covid-19 pandemic. Restrictions under the ‘zero-Covid’ approach, along with a struggling property market, have led to another downgrade of China’s growth outlook.