South and Southeast Asia are bright spots for growth in developing Asia in 2024

The Asian Development Bank's (ADB) annual outlook report for 2024 paints a promising picture for developing Asia, forecasting healthy growth of 4.9 per cent (Pg 3). Key drivers include stronger domestic demand, expanding tourism revenues, and projections of moderating inflation. Inflation in developing Asia is projected to fall from 3.3 per cent in 2023 to 3.2 per cent in 2024.

While risks persist, such as geopolitical tensions and shipping disruptions, South and Southeast Asia shine as bright spots for growth. India is expected to remain a major growth engine within Asia, while China’s growth is expected to moderate to 4.8 per cent in 2024 amid continued property sector weakness.
 

Here are a few highlights:

1. Domestic demand is driving growth momentum in developing Asia

Consumption remained strong in the second half of 2023 as consumer confidence improved (Pg 4). Investment has remained resilient with strengthening activity in India, Indonesia and Hong Kong.

However, there are variances across the region – for example industrial production in Malaysia, the Philippines and Vietnam saw modest growth but output in Thailand declined throughout the year.

South Asia remains the fastest growing subregion given the improvement in domestic demand. This growth will be led by services with manufacturing playing a supporting role.

2. External sector regains momentum

A shift from goods to services spending resulted in dampened external demand, though exports did regain momentum in late 2023. This was largely driven by a rebound in electronics; however East Asia is driving the upturn with Southeast Asia lagging behind (Pg 13).
 

3. AI drives the rebound in semiconductors

Semiconductor exports from Asia are rising after contracting sharply at the end of 2022. Exports from the region’s main semiconductor manufacturing economies were about 15 per cent higher in 4Q2023 compared to 1Q2023.

The pickup has been driven by increasing demand for microprocessors and memory chips – due to the AI boom.

Southeast Asia’s economies are trying to increase their share of the global semiconductor value chain and remain attractive to investors – given their younger and large pool of workers. But to harness this potential, governments in the region should focus on policies that attract foreign direct investment, while increasing spending on research and development and also human capital development, as semiconductor manufacturing requires highly skilled labour (Pg 37 - 41).
 

4. Tourism Sector Recovery

The easing of travel restrictions and pent-up demand are driving a rebound in international tourism across developing Asia (Pg 18) with travel receipts rising alongside tourist arrivals.

For five ASEAN economies – Indonesia, Vietnam, Singapore, Malaysia and the Philippines – tourists from the rest of Asia and Europe are helping to lead the tourism recovery. The number of visitors from the Americas and Europe are almost back to pre-pandemic levels, but those from China have not yet recovered.
 

5. Emerging Risks

While economic conditions appear favourable, risks persist in the form of geopolitical tensions, shipping disruptions, and adverse weather events. Policymakers must remain vigilant and navigate with caution to sustain economic momentum (Pg 32 - 36).

Geopolitical Concerns: Geopolitical tensions and conflicts in the Middle East and other regions pose a potential threat to global trade and economic activity in developing Asia.

Supply Chain Disruptions: Disruptions in global supply chains, including rising shipping costs, could also lead to inflationary pressures and hinder economic growth.

US Monetary Policy: The potential for tighter monetary policy in the United States could lead to capital outflows from developing Asia, impacting investment and financial markets.

Climate Change: The ongoing impacts of climate change, such as extreme weather events, also pose a risk to economic activity and infrastructure development in the region.
 

GDP growth rate and inflation - ASEAN-6 and India

Source: Asian Development Outlook Report April 2024