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Economy 2023: Asian giants walk a tightrope

IFM_ Economy 2023
IMF has predicted a strong rebound for COVID-hit Chinese economy in 2023, with industrial mobility and activities picking up the pace

The year 2022 was a tough one for the global economy. It started with the Ukraine conflict and the resultant sanction warfare between Russia and the United States-led Western Bloc. Moscow dried up natural gas supplies to Europe, thus creating a cost of living crisis in the continent. Central banks around the world also got involved in the rate hike race, thus leading the economies towards soaring inflation, with a strong dollar making imports costlier. On top of these, China’s ‘Zero COVID’ policy saw the world’s biggest manufacturing hub going through disruptions throughout the year.

So what lies ahead in 2023?

The International Monetary Fund (IMF) has put up a positive growth outlook (not by a big margin, but positive indeed) for 2023, due to “surprisingly resilient” demand in the United States and Europe, easing energy costs and the reopening of China’s economy.

“It still sees the pace of global growth falling this year compared with 2022, but by a smaller margin than it predicted in October. The IMF is now forecasting 2.9% growth for 2023, up from a 2.7% forecast in October, versus 3.4% growth last year,” the global financial body said in its Europe. However, the recession threat looms large.

“Central banks are likely to continue to tighten monetary policy to fight inflation, and concerns that this restrictive stance could tip the economy into a recession have increased in major advanced economies,” the report remarked.

Asia emerges as the shining spot

As per the IMF, financial conditions in the Asia-pacific region are easing currently. Not only have food and oil prices gone down, but China’s reopening has also boosted the rebounding hopes as well. GDP growth in this part of the world is set to accelerate to 4.7% in 2023 from 3.8% in 2022.

“This will make it by far the most dynamic of the world’s major regions and a bright spot in a slowing global economy,” IMF remarked.

The emerging and developing economies here will expand by 5.3% in 2023, an impressive figure against the overall global GDP growth ratio of 2.9%.

“China and India alone are expected to contribute more than half of global growth this year, with the rest of Asia contributing an additional quarter. Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are all back to their robust pre-pandemic growth,” IMF commented.

The financial institution’s latest ‘Regional Economic Outlook for Asia and the Pacific’ remarks, “For every percentage point of higher growth in China, output in the rest of Asia rises by around 0.3%.”

However, the region’s manufacturing sector has started cooling down. For Korea, Singapore, and Taiwan, the downfall in semiconductor prices will last throughout 2023.

However, the good news here is that inflation is getting moderate in this part of the world. IMF believes that the phenomenon peaked during the 2022 second half. Core inflation is still proving more persistent and may return to central banks’ agenda in 2024 even as financial and commodity headwinds continue to ease.

The Ukraine war and monetary policy tightening from the US Federal Reserve in 2022 made import a costly affair for Asia. However, the pressures of current account deficits and inflation have been cooling off.

“While inflation is moving in the right direction, central banks need to stay alert. Core inflation is still running above the target. The big supply shocks and permanent structural realignments associated with the pandemic have made calibrating monetary policy particularly challenging. Signals in the data about second-round effects are mixed, further heightening uncertainty for policymakers. Given the two-sided risks to inflation in Japan, more flexibility in long-term yields would help to avoid abrupt changes later,” IMF warns.

As China continues its recovery journey, the renewed dynamism of the world’s second-largest economy may put upward pressure on global commodity and service prices, particularly in countries expecting resurgent tourism. Central banks should tread carefully as they face the price stability challenge and if the core inflation doesn’t return to the targets set by these banks; these financial institutions may need to hike rates further.

Another area which needs attention from the policymakers is the fiscal deficit health, which has been shooting up since 2020, and higher interest rates in 2022 added more to this burden. Pakistan, Sri Lanka and Bangladesh have been at the receiving end of the crisis and the authorities need to continue with their fiscal consolidation plans.

“Many Asian countries face elevated financial vulnerabilities, with high leverage across household and corporate sectors, and significant bank exposure to real estate downturns. This suggests subtle policy trade-offs between controlling inflation and ensuring financial stability, and a need to strengthen resolution frameworks,” IMF remarked.

Now, let’s see Asia’s current economic scenario.


The IMF has predicted a strong rebound for COVID-hit Chinese economy in 2023, with industrial mobility and activities picking up pace. The economy will expand 5.2% this year, against 3% in 2022. The country will be contributing a third of global growth in 2023.

“The contraction in real estate remains a major headwind, and there is still some uncertainty around the evolution of the virus. Longer-term, headwinds to growth include a shrinking population and slowing productivity growth,” the financial body commented.

Another worry for the Chinese government is a shrinking labour force and diminishing returns to capital investment. The IMF strongly pitched for organisational reforms, especially in the field of productivity, to prevent GDP from falling below 4% over the next five years.

India will ultimately surpass China’s overall population in the next few years and will also cross the latter’s working-age population (20 to 69) as well. China’s working-age population allowed it to become the world’s factory. Over 70% of solar panels, 60% of farm machines, and 25% of robots are constructed with Chinese components.

As per a report from the Hong Kong Post, China is currently re-assessing the labour policies to arrest the declining working population, which can be a potential headache for its domestic market, as well as the global economy. Estimates say that by 2035, around 400 million Chinese will be over 60, nearly a third of the total population. The Chinese labour sector is known for being overworked and underpaid, with competition being heavy and the market lacking worker welfare schemes.

Another troublesome area is the country’s real estate sector, which used to contribute to about a quarter of China’s GDP, but is now facing a drag growth, especially after Beijing cracked down on developers’ debt reliance in 2020. Apartments are usually sold to homebuyers before project completion. However, with COVID disruptions, construction activities have slowed down, resulting in homebuyers halting their mortgage payments as a mark of protest. Residential floor space sale figures have dropped by nearly 27% in 2022, while investments went down by 10%.

Also, Beijing is currently involved in a ‘semiconductor battle’ with the US. The Joe Biden government has imposed export controls and China now faces the challenge of ramping up its domestic capacity for producing these high-end chips. Bloomberg reported in 2023 beginning about the Xi Jinping government stopping its investment in the domestic semiconductor industry and it came two weeks after the news of Beijing preparing a one-trillion yuan (USD 145.61 billion) incentive package in this sector.


In its latest projections, the IMF has predicted a dip in the Indian economy from 6.8% in 2022 to 6.1% in 2023. However, the forecast looks impressive for the country, which registered a quick recovery from COVID in 2021, at a time when developed economies like Germany and the UK are facing recession fallouts.

India’s GDP growth figures will also surpass the overall global economy, which is likely to take a plunge to 2.9% in 2023-24, slowing down further from 3.4% in the 2022-23 fiscal period.

IMF Managing Director Kristalina Georgieva, while attending the G20 summit in India, predicted that the country will alone contribute 15% of the global growth in 2023, thus reiterating her stand of calling the Asian country a ‘bright spot’ amid a worldwide economic slowdown.

She also stated that the country’s recent Budget had indicated fiscal discipline and directed more attention to capital spending, which is fundamental for long-term growth.

In his budget, India’s capital investments will see a 33% steep hike for the third year in a row, to enhance growth potential and job creation, crowd-in private investments, and provide a cushion against global headwinds. Railways and road networks, two crucial sectors of the Indian economy, have seen enhanced capital outlays, while 50 new airports, drones and advanced landing grounds will jack up regional connectivity further. MSME, another lifeline of the Indian economy, will continue to receive an infusion of fresh corpora. Eyeing more foreign investments, the Narendra Modi government will bring another dispute resolution scheme, while setting up a ‘Central Processing Centre’ to provide faster responses to companies filing forms under the Companies Act. On the social front, the health sector will undergo further digital transformations, as it eyes the elimination of sickle cell anaemia by 2047. The outlay for government-backed housing projects has seen a 66% hike.

Also, top educational institutes will have centres of excellence for artificial intelligence, along with the ‘National Data Governance Policy’ to encourage innovation and research by start-ups and academia. The agriculture sector will get an ‘Agriculture Accelerator Fund’, which will encourage start-up activities in this part of the Indian economy, along with the introduction of a new digital public infrastructure. India also has laid down plans to become the global millet hub.

During the COVID outbreak, the country launched a food security scheme for its socially vulnerable citizens and this will continue till 2024. The technology and knowledge-driven budget envisions India continuing its impressive growth journey, which saw it toppling the UK from the position of the fifth largest economy in the world.

As per the Reserve Bank of India data in August 2022, the country’s external debt stood at USD 620.7 billion at March-end that year, with the forex reserves covering some 95% of it. India will likely hike its interest rate to 6.75% in the middle of 2023, before easing to 6.5% by the year-end. While inflation falls below 7% in September 2022, it is still high from RBI’s 6% ceiling.


The Japanese economy got featured in news in 2022 due to its yen reaching a record 32-year low, despite the country, with an Inflation rate between 2.8% to 3%, being better placed among the G7 countries, to tackle the global economic slowdown. However, the falling yen ensured an alarming growth of the trade and current account deficits between Japan and the US.

Japan, which, as opposed to other countries, takes the monetary policy easing the path to combat economic slowdowns, saw its interest rate staying on the negative scale during COVID. It became positive in September 2021 and rose to the 2008 level of 2.5%. The bank’s short-term policy rate remained at an ultra-low level in 2022.

Now in 2023, the country is in some crisis as the Bank of Japan sees a leadership change. Official figures for the last three months of 2022 showed Japan’s economy expanded by 0.6%, much lower than forecasts of 2% growth. December data showed core consumer prices rising by 4% from 2021, twice the rate targeted by the central bank. Kazuo Ueda, the upcoming BoJ governor, now faces the challenge of raising the interest rates, without harming the island country’s economy.

Ukraine war and the subsequent global energy crisis have only forced Japan to relook over its energy policy. As the public anger over the use of nuclear energy intensified post Fukushima disaster in 2011, Japan decided to expand its conventional energy imports. Even in its carbon neutrality goal for 2050, as announced in 2020, Japan didn’t consider the construction of new nuclear plants necessary then.

However, things have changed in 2023, with the nation’s nuclear watchdog approving new rules to allow reactors to operate longer than the earlier limit of 60 years.

Gas and electricity bills in December 2022 climbed 23.3% and 21.3% against 2021. Households are struggling as energy imports get costly. The government has provided subsidies worth 6 trillion yen to oil wholesalers since January 2022, as well as setting aside a package worth 3.1 trillion yen for households to partially cover energy price increases.

Tokyo Electric Power Company Holdings saw a net loss of 650.9 billion yen in 2022, larger than the 623 billion yen net loss posted following the Fukushima episode. Other leading utilities also raise electricity bills in 2023 to offset the growing energy import costs.

Right now, Japan expects nuclear energy to generate between 20% and 22% of its total output in fiscal 2030, up from 6.9% in fiscal 2021 due to many reactors remaining offline.

Also, the Ukraine war and an escalating economic conflict between US and China are necessitating the need for ensuring economic security at the government level, so that if armed conflict breaks out in Taiwan, Japanese industries should not face supply chain disruptions. A bill in this direction cleared in the Parliament in May 2022 and is expected to gather momentum now.

Toyota Motor Corp has accepted a worker union demand for a record 20-year increase in salary and incentive payments in full. Honda Motor too will give its workers a 5% pay increase, the highest since 1990.

South Korea

Japan’s neighbour, South Korea, kept its interest rates the same in February 2023, after steadily raising them since 2022, amid high inflation, weakened exports, and a housing market slowdown. The interest rate now stands at 3.50%. While the Bank of Korea has warned about China’s reopening having little impact on the country’s economy, South Korea GDP has shrunk more than expected, with the semiconductor and technology sectors witnessing a slowdown. The country has produced a record trade deficit of USD 12.7 billion in the first half of 2023, as exports slumped by 16.6%. Semiconductor exports went down by 44.5%, while total imports fell by 2.6%.

Even though Vietnam emerges as a surprise package with a 6.5% GDP growth forecast for 2023, apart from challenging China’s status as a global manufacturing hub, poor outlooks from Singapore, Taiwan, Thailand and Malaysia, and lacklustre pictures from Sri Lanka, Bangladesh and Pakistan suggest that the major workload of making Asia as a ‘growth machine’ for 2023-24 will be on the shoulders of China, India, Japan and Korea. The growing price volatility in the semiconductor sector due to the China-US trade war can very much emerge as another market factor in this part of the world.

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