Despite global slowdown, Asia's economies show resilience and growth for 2023

The Asia House Annual Outlook 2023 examines how Asia's economies can prevail and deliver robust growth through increased domestic demand for goods and services, countering the global headwinds of high inflation, tighter monetary policy and increasing geopolitical tensions.  

Key among the Annual Outlook's recommendations are those relating to prioritising innovation – to spur carbon pricing, lower green premiums for zero-carbon alternatives, and boost underfunded and high-impact projects with blended finance.

'Asia is likely to prove resilient if investment and financial flows are directed to digital and green innovation to underpin sustainable growth and investment,' the Annual Outlook finds.

However, and mirroring the global outlook, Asia is susceptible to risk and faces multiple and multi-faceted shocks, such as energy-price volatility, geopolitical conflict, and higher borrowing costs.  

Asia House assessed eight key economies in Asia across metrics conducive to meeting these challenges. In two indices published today, the think tank analyses the performance of China, India, Indonesia, Japan, Malaysia, the Philippines, Thailand, and Vietnam in the critical areas of green finance and digitalisation readiness – areas that will unlock future productivity and enable sustainable growth across the continent.

Asia House's Economic Readiness Indices suggest that prioritising economic readiness to tackle both climate change and digitalisation, and the policies that link the two, will create higher growth.

China will see increased growth – albeit sluggish – having abandoned its zero-Covid policies.  It also shows an improvement in its scores for economic readiness for green finance.

India will see continued economic recovery and is on track to be one of the fastest-growing economies globally. However, the country is susceptible to financial volatility and it has the lowest readings in readiness for both green finance and digitalisation.

Japan is likely to bear the brunt of multiple financial shocks, including a weak yen and higher energy prices – both of which reduced its Readiness Index for green finance. Japan's digital readiness scores improved for 2023.

Vietnam is likely to register one of the strongest economic growth rates in 2023, owing in part to its vibrant external sector and domestic policy settings that will catalyse inward investment.

Malaysia is making significant strides, underpinned by the strength of domestic demand and digitalisation.

Thailand's economic readiness readings for green finance registered the largest rise according to Asia House.

Indonesia will show economic resilience in 2023. It has struck the right balance in monetary policy in terms of encouraging growth while taming inflation.

The Philippines is likely to grow, which presents an opportunity for the country's policymakers to improve the domestic ecosystem for green finance and digitalisation.

Asia House comment

Michael Lawrence, Chief Executive of Asia House: "Against the backdrop of a weak global economic outlook for 2023, Asia's economies may defy the trend and deliver robust growth despite the challenges of high inflation, rising interest rates, fuel price volatility and geopolitical tensions.

"The Asia House Annual Outlook is published to give key insights into the region's economies and increase understanding of the opportunities and obstacles in Asia in an increasingly unpredictable and turbulent world".

Phyllis Papadavid, Director of Research and Advisory, Asia House: "Our outlook indicates that Asia's growth prospects continue to hinge on an acceleration in digital transformation, greater regional coordination, and striking the right balance in broader monetary policy across the region.

"Furthermore, the Asia House Economic Readiness Indices suggest that prioritising economic readiness for both climate change and digitalisation, and the policies that link the two, will be essential for Asia's higher growth trajectory."       

Policy recommendations

Drawing on the Indices, the Asia House Annual Outlook 2023 report includes several recommendations for policymakers across Asia.

Scaled-up regional coordination in Asia is necessary to bolster economic integration further, particularly in the form of expanded economic zones and investment corridors.

Enhanced and coordinated reserve management is needed at a time when Asia's reserves are declining.

By adopting carbon-pricing mechanisms, the 'green-premium', or the additional costs of opting for green technology, will be reduced.
The leveraging of private investment and risk absorption will support scaled-up sustainable finance.

Innovations in blended finance – using development funds to spur private investment – need to funnel capital into high-impact and under-capitalised green projects.

Asia's broader digital access and digital skills, particularly in the rural sectors in its larger economies, is a policy gap.