Dhe clouds over Asia are darkening. Global interest rate differentials are causing more and more money to flow out of the region, external demand is starting to weaken, inflation is pushing more people into poverty, the food crisis is spreading and the effects of climate change are becoming more and more noticeable. “Social and economic conditions have worsened,” said Masatsugu Asakawa, President of the Asian Development Bank (ADB), at the start of its 55th Annual Meeting.
He warned that the consequences of climate change should finally be considered more closely: “The recovery from the corona pandemic offers us a historic opportunity: it must include the fight against climate change.” The ADB itself is an example of the crisis: had to Conference to be moved from Sri Lanka, which collapsed under the burden of debt and bad decisions by the government, to the Philippines, to the bank’s headquarters.
“The external environment has deteriorated for the Asia-Pacific economies,” says the economic outlook published at the same time by the rating agency Standard & Poor’s. “The widely expected slowdown in global demand will be a major test for the Asia-Pacific region.” Asakawa emphasized that the Asian economies are in better shape than they were at the time of the Asian crisis from 1997.
Weak currencies make raw material imports more expensive
Nevertheless, there is growing concern about rising interest rates in the industrialized world. Their currencies, some of which are hovering around their record lows, are making it increasingly expensive for Asians to buy raw materials on the world market that are billed in dollars. A glimmer of hope comes from cheaper exports: “The stronger dollar is bad news in terms of inflation and debt burdens, but good news in terms of exports and tourism,” said Aaditya Mattoo, chief economist for Asia-Pacific at the World Bank. She presented her outlook on the region at the same time.
“S&P believes that higher global interest rates and the associated strains on capital flows, combined with differing levels of domestic inflation, will put pressure on central banks in Asia-Pacific to raise interest rates, even as the economy weakens,” the statement said analysts.
That could set off a chain reaction: Overdue investments could fail to materialize, making it even more difficult to create jobs in Asia. Driven by Corona and the high inflation rate in Asia, the number of poor people has risen again for the first time in decades. “Nearly 1.1 billion people in this region cannot eat healthily because they are poor and food prices have risen to record levels this year,” Asakawa warned Tuesday.
China becomes a burden
The ADB sees the overlapping crises as an impetus to combat climate change in all responses. “We must act now, before the consequences of climate change worsen and further undermine the region’s hard-won development gains,” Asakawa said.
The bank he runs pledges an additional $14 billion between 2023 and 2025 to support climate goals. The money is expected to spur $5 billion in private investment. The sum remains a drop on an increasingly hot rock: “The developing countries of Asia need 1.7 trillion dollars a year to strengthen their resilience to the consequences of climate change,” said Asakawa.
The bank plans to expand its Asia de-coal program, which is being piloted in Indonesia, the Philippines and Vietnam. A good half of global greenhouse gas emissions now come from the Asia-Pacific region. Asakawa warned of migration flows that could set in as a result of the growing number of climate catastrophes such as the floods in Pakistan. However, it is not easy to achieve success on this front: not only India is investing massively in the construction of coal-fired power plants in order to be able to at least partially cover the rapidly growing energy requirements of the world’s fifth-largest economy.
Another challenge for the region is China’s weakness: the World Bank stated that “the region will be weighed down by Chinese growth”. China’s rate is likely to melt to 2.8 percent this year from 8.1 percent last year. That pace of growth means the rest of the region will outpace China for the first time in decades — though still too slow to create enough jobs. As recently as April, the World Bank had forecast growth of 5 percent for China. S&P reduced growth expectations for China on Tuesday from 3.3 percent for this year to 2.7 percent, next year the world’s second largest economy should then grow by 4.7 instead of the hoped-for 5.2 percent.
“We assume that the real estate sector will probably not recover quickly and that slower demand from abroad will be felt. In addition, geopolitical considerations and economic decoupling by the United States and other countries are weighing on growth prospects. Some investment decisions are being postponed, and some foreign companies are trying to expand production in other countries.” The rest of the region is set to grow 4.8 percent this year, and then just 4.3 percent next year instead of what was expected in June 4.6 percent. India’s faster growth has so far only partially offset China’s weakness.