Why China’s economy faces a perilous road to recovery
Three weeks after Xi Jinping, China’s top leader, tried to reinvigorate China’s stalled economy by abruptly abandoning his stringent pandemic restrictions, he struck an upbeat note in his annual New Year’s Eve address. “China’s economy has strong resilience, great potential and vitality,” he said. But that optimism is hard to find in downtown Guangzhou, the commercial hub of southern China. Nearly three years of “zero Covid” measures have crushed businesses. Streets are lined with shuttered stores and workshops. Walls are plastered not with “help wanted” signs, but with notices from entrepreneurs putting their businesses up for sale. Roads and alleys once packed with migrant workers are now mostly empty.
CEBR: Bangladesh to become 20th largest economy by 2037
Bangladesh is slated to become the 20th largest economy in the world out of 191 countries by the year 2037, according to a London-based think tank. A London-based think tank Centre for Economics and Business Research (CEBR) made the projection that was disclosed recently. The latest findings were disclosed in CEBR’s annual World Economic League Table (WELT 2023) report that cited Bangladesh as one of the fastest-growing economies in the world for more than a decade. As per CEBR, Bangladesh’s long-term outlook looks promising based on its macroeconomic stability, strong remittance flows and robust export market. According to the report, Bangladesh is currently the second largest economy in the region and will continue to sustain it till 2037 with a GDP size of $1,628 billion at current prices (currently $429 billion). Bangladesh has been classified as a lower middle-income country for 2022 by the CERB, which lauded the government’s efforts in ensuring a low debt-to-GDP ratio while operating a 5.1 percent fiscal deficit in 2022. The think-tank also concluded that strong macroeconomic fundamentals, infrastructure improvements and enhanced digitalisation have enabled the country to move towards post-pandemic recovery. The output growth in fiscal 2020-21 was estimated to stand at 6.9 percent, after which growth is expected to have accelerated to 7.2 percent in the 2021-22 fiscal year (FY). The CEBR expects an average growth rate of 6.4 percent between the FY2022-23 and FY2026-27, citing Bangladesh’s strong and consistent growth to be credited to strong remittance flows and a robust export market and both factors are expected to play a significant role in the economy’s growth moving forwards.
India’s promised boom
India’s economy will benefit from a global drive to diversify supply chains, manufacturing investments and technological infrastructure in 2023. With its population set to surpass China’s in 2023 and growth set to outpace rivals for the foreseeable future, the country’s economic ambitions are increasingly attracting long-term investors’ attention.
India’s economy, the world’s fifth largest, likely expanded by 7 percent in 2022 and maintained its status as one of the fastest growing major economies. Over 2023, we expect growth to slow to 6 percent, but that modest change is unlikely to be sharp or lasting. The business sector looks better prepared to weather this slowdown with higher profitability, while monetary policy tightening is poised to pause soon. Although the banking sector’s underlying fragility is a risk, our base case is that the cyclical slowdown will be manageable. If so, the market’s focus will be firmly on the country’s long-term prospects. India’s youthful population will continue to work in its favour. According to the United Nation’s forecasts, India’s population will surpass China’s in April 2023 for perhaps the first time ever.
Why Japan’s sudden shift on bond purchases dealt a global jolt
Japan is the world’s largest creditor. At the end of 2021, it held roughly $3.2 trillion in foreign assets, 30 percent more than No. 2 Germany. As of October, it owned over a trillion dollars of U.S. government debt, more than China. Japanese banks are the world’s largest cross-border lenders, with nearly $4.8 trillion in claims in other countries. Late last month, the world got an unexpected reminder of how integral Japan is to the global economy, when the country’s central bank unexpectedly announced that it was adjusting its stance on bond purchases. To those unversed in the intricacies of monetary policy, the significance of Japan’s decision to raise the ceiling on its 10-year bond yields may not have been immediately clear. But for the finance industry, the surprising change raised expectations that the days of rock-bottom Japanese interest rates could be numbered — potentially further squeezing global credit markets that were already tightening as the world economy slowed. Since this summer, the Bank of Japan has been an outlier, keeping its interest rates ultralow even as other central banks raced to keep up with the Federal Reserve, which has ratcheted up lending costs in an effort to tame high inflation. As global rates have diverged from those in Japan, the value of the yen has fallen as investors sought better returns elsewhere. That has put pressure on the Bank of Japan to shift the world’s third-largest economy away from its decade-long commitment to cheap money, a policy known as monetary easing. Japan’s deep integration into global financial networks means that there is a lot of money riding on the timing of any move away from that policy, and investors have spent years fruitlessly waiting for a sign.
Indonesia’s year of diplomatic triumph loses a little of its gloss
The G20 presidency in 2022 presented diplomatic and substantial challenges that threatened to blow the forum apart, or at least to semi-permanently incapacitate it. That Indonesia hosted a successful summit and passed leadership of the forum on to India in good working order was a diplomatic triumph for Indonesia’s leadership and significantly elevated the country’s standing on the global stage.
Despite its size and political weight — as the third-biggest democracy in the world, an emerging economy that is likely to be among the four biggest in the world within a few decades and its political leverage in Asia through ASEAN — few credited Indonesia with the capacity bring it off, in part a product of post-colonial prejudice, in part a product of ignorance about just where Indonesia is at in the world today.
Events were certainly stacked against a successful G20 summit last year. On top of the COVID-19 crisis, Russia’s invasion of Ukraine sharply aggravated growing geopolitical tensions and the fragmentation of the world economy. The US trade and technology war with China signalled the acceleration of protectionism and international ‘decoupling’.
Can Malaysia’s economy survive a Black Swan event in 2023?
As 2023 dawns, research houses and economists are in consensus that Malaysia will likely dodge a recession this year, with a majority of them forecasting economic growth at between 4 percent and 4.5 percent. Bank Negara Malaysia’s forecast is for the economy to expand by 4 percent-5 percent in 2023, according to its governor Nor Shamsiah Mohd Yunus. While the consensus is that Malaysia’s economic outlook is relatively benign, it will be foolish for policymakers not to be prepared for events that could plunge the economy into a downward spiral. Unexpected shocks that can cause catastrophic damage to economies are sometimes referred to as a “Black Swan” event. These are infrequent events, but a recent example was the Covid-19 pandemic. In 2023, some possible Black Swans could be an escalation in the Russia-Ukraine war if Nato is somehow dragged into the conflict, or a military flare-up in the Taiwan straits between China and Taiwan, and the US. Any such scenario would crash global stock markets, and precipitate a surge in oil and gas prices, fuelling inflation and more aggressive interest rate hikes. Or there could be the emergence of a deadly Covid variant that plunges the world into lockdowns once again.
Warning bells in the Maldivian economy
In November, this year, the Maldives saw the approval of ‘2023 State Budget’ which stood at MVR 42.8 billion (US$2.7 billion approx.), and a sanction of MVR 5.8 billion (US$376 million approx.) as a supplementary budget for the remaining of 2022. Additionally, the implementation of a new tax hike of 4 percent in Tourism Goods and Services Tax (TGST) and 2 percent in Goods and Services Tax (GST) will be effective from next year. Since the country’s economy is grappling with decreasing forex reserves along with large public and external debts, revenue of MVR 3.14 billion (US$204 million approx.) is expected from the tax hike and the approved ‘State Budget’ aims to generate total revenue of MVR 32.1 Bn (US$ 2 billion approx.) next year. However, as a country that largely depends on tourism, a sudden hike in the TGST will likely backfire.
Singapore’s 2022 GDP growth beats amid lurking headwinds
Singapore’s recovery held up in 2022, with a relatively strong year-end performance shoring up the economy ahead of an expected global slowdown this year. Gross domestic product grew 3.8 percent during the year, according to advance estimates Tuesday from the Ministry of Trade and Industry. That’s a slight beat from the government’s projection for a 3.5 percent annual expansion. The better-than-forecast performance followed a 2.2 percent GDP expansion in the three months through December from a year earlier. The economy grew 0.2 percent last quarter from the previous three months. The Singapore dollar initially rose on the GDP headlines, but reversed course after failing to breach the 1.34 line against the US dollar. The report showed one clear risk ahead for the trade-reliant economy, with manufacturing shrinking 3 percent year-on-year in the fourth quarter for the first contraction since the three-month period ended June 2020 and in line with a softening in the region’s trade outlook. Five purchasing managers index reports out Tuesday illustrated the ongoing weakness across trade-heavy Asia, with China, Taiwan, Malaysia and Vietnam all remaining in contraction territory and just Philippines notching an expansionary reading, at 53.1. Covid-battered China’s Caixin reading was 49, for a fifth consecutive contraction.
Yearender 2022: Nepal’s economy busted by covid, war and inflation
The year 2022 saw Nepal’s economy take a battering with inflation going through the roof affecting the lives of the general public. Rising prices of consumer goods had an adverse impact on low-income households that function mostly on a hand-to-mouth basis. The Covid pandemic, followed by the Russia-Ukraine war and inflation triggered an economic slowdown globally and Nepal was not an exception. From fuel to food and transportation to entertainment, everything became dearer for Nepalis. A major chunk of the population who are wage earners were hit hardest by ever-rising inflation and stagnant wages. According to economists, inflation remained moderately high in Nepal throughout 2022. “But there are lesser chances of inflation crossing the double-digit mark in the coming year,” said Prakash Kumar Shrestha, chief of the economic research department at Nepal Rastra Bank, the country’s central bank. Shrestha attributes rising fuel prices, the Russia-Ukraine war and the appreciation of the US dollar to the rise in inflation. Although fuel prices have started to fall to some extent, the US dollar has been appreciating against Nepali currency, which is pegged with Indian currency.