Year in Review: Rollback of pandemic restrictions fuelled growth

An easing of Covid-19-related restrictions and shifting supply chains have bolstered growth in Asia, even as inflation and climate change generate significant headwinds.

While South-east Asian countries such as Thailand and Vietnam had lifted restrictions in 2021, the last quarter of this year saw Japan reopen its borders to foreign travellers and China begin to roll back Covid-19-contaiment policies, signalling a gradual return to economic normalcy in the Asia-Pacific region. 

Supply chain bottlenecks

The same issues stalling economic growth across the globe – inflation, supply chain bottlenecks and high commodity prices stemming from Russia’s ongoing invasion of Ukraine – have impacted Asian economies; however, the region continues to outperform the rest of the world. 

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As high commodity prices continue to impact supply chains, East Asia was the only region to see trade growth in the third quarter of the year, even as global trade volumes sagged.  

Much of the downgrade in regional growth forecasts is due to China’s slowdown, with the IMF expecting the country’s growth to dip to 3.2% in 2022 due in part to the economic barriers imposed by its stringent zero-Covid-19 policy.

The rest of the region, however, is expected to grow by 5.3%, putting China behind its neighbours for the first time since 1990, thanks in part to robust performance in South Asia and ASEAN economies such as Vietnam. 

Bridging the gap

Since 2020 several governments and businesses have pursued a so-called China+1 strategy, diversifying production capacity by setting up in other countries while maintaining operations in China. 

Vietnam in particular has stood out as a regional manufacturing and supply chain alternative to China, with increased exports to the US and others helping to boost 2022 GDP growth to 8%, its fastest pace of expansion since 2011. 

Bangladesh, India, Malaysia and Thailand have also benefitted from the shifting of global supply chains away from China, attracting industries ranging from textiles and auto parts, to higher-end electronics such as smartphones.

The recent spike in demand for electric vehicles (EVs) has also prompted various emerging markets in the region to invest in EV manufacturing. 

New policies to attract EV manufacturers

Already South-east Asia’s top auto-manufacturing centre, Thailand has engineered new policies to attract EV manufacturers from more mature markets and boost production, including a cash subsidy for passenger EVs.

The country aims for EV production to account for 30% of total automobile output by 2030. 

Meanwhile, Indonesia is set to become a major EV player in the region, with the world’s two-largest EV battery producers preparing to invest in mines-to-manufacturing EV projects in the country, which holds around one-quarter of the world’s supply of nickel, a key component in EV batteries.

The country is also targeting a slice of the growing solar panel market. In late January the Indonesian government announced plans to establish a $4bn polysilicon industry after prices for the material – a key component in the production of solar panels – reached 10-year highs in 2021. 

Read more: Asia: Year in Review 2022 | Oxford Business Group