Regional Outlook: Asia

Asia is forecast to expand at 4.1% in both 2024 and 2025¹, a drop from 2023’s 4.5% pace. Inflation is still elevated but cooling, which gives hope to firms, financial markets, and consumers that central banks will soon cut rates. The unemployment rate is not expected to change meaningfully in the next two years from the current 4.7%.²
Better-than-expected growth from China and India helped propel the region in 2023. Asia has shown profound resilience in the face of a challenging global environment. Retail sales in China, Japan, Singapore and South Korea remain soft as consumer confidence is broadly low. Weak international demand has hampered exports, but the wheels of manufacturing keep turning. Industrial production in emerging Asia maintains its expansion. In the next couple of years, Asia is forecast to drive global export growth as increasingly more advanced manufacturing is achieved.
Supply chain reorganization, stemming at least partially from the geoeconomic uncertainty, is driving investment from inside and outside the region; this is providing a buffer from the global demand doldrums. Semiconductor fabrication is being spread across the continent as opposed to being held in a few select countries. Vietnam is expanding in both services and manufacturing as foreign direct investment continues to grow.
Inflation, though nearing long-run levels, is still elevated. Central banks are taking their time on cutting rates. Each is balancing interest rate differentials versus overshooting inflation targets, due to the US (RC) Federal Reserve’s (Fed) delayed rate cuts. If central banks cut too fast compared to the Fed, then their debt becomes less attractive, causing domestic currencies to depreciate relative to the US dollar. While that may aid exports, it harms the purchasing power of consumers and businesses.
China, unlike other countries, did not experience rampant inflation, so rate cuts by the People’s Bank of China have been purposeful to stimulate lending. The Reserve Bank of India, Bank Indonesia, Central Bank of Malaysia, Bank of Thailand, Central Bank of the Philippines and Monetary Authority of Singapore are among the major developing economy central banks holding policy rates in restrictive territory.