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China’s Reopening to Drive Asia and Global Economic Growth
Asia and the Pacific is a relative bright spot amid the more somber context of the global economy’s rocky recovery.
As the Chart of the Week shows, the region will contribute about 70 percent of global growth this year—a much greater share than in recent years.
The impressive growth of Asia’s economy is being fueled by China’s reopening. The country has been instrumental in driving growth across the region as surging consumption lifts demand for goods and services beyond its borders. However, while the region continues to be a bright spot in an otherwise sluggish global economy, it still has its share of challenges.
In the short term, policymakers in Asia will need to maintain tight monetary and fiscal policies to combat inflation and stabilize public debt. At the same time, global shocks like supply chain disruption and unexpectedly tight US monetary policy may negatively impact the region.
Our latest Regional Economic Outlook describes the resilience of the world’s most dynamic region and important challenges facing its policymakers. Growth in Asia and the Pacific is forecast to accelerate to 4.6 percent this year from 3.8 percent last year.
The main development has been the reopening of China, where surging consumption is boosting growth across the region despite weaker demand from the rest of the world. Risks to the outlook include spillovers from greater-than-expected US monetary policy tightening and supply chain disruptions associated with geoeconomic fragmentation.
But the region also faces important challenges. In the short term, monetary and fiscal policies will need to remain tight to bring inflation durably back to central bank targets and stabilize public debt. An integrated policy response using all available tools will be needed to manage global shocks. While Asia’s financial systems haven’t seen major impacts following recent banking turmoil in the United States and Europe, they need to be carefully monitored given high leverage among households and corporates.
In the longer term, the Chinese economy that has been the primary engine of regional and global growth for decades is expected to slow considerably in the face of unfavorable demographics and a productivity slowdown. The region should prioritize structural reforms to boost long-term growth, including through innovation and digitalization, while accelerating the green energy transition.
Looking ahead, Asia’s long-term growth prospects are uncertain, with China forecasted to slow down economically in the coming years. To sustain long-term growth, the region will need to prioritize structural reforms and prioritize changes that would accelerate its green energy transition, as well as digitalization and innovation.
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