ADB lowers GDP growth forecast for SL and rest of developing Asia

• Says policy measures should not only focus on containment and vaccination but also on continuing support to firms and households and reorienting sectors in the economy to adapt to a ‘new normal’ once the pandemic subsides to kickstart the recovery

The Asian Development Bank (ADB) has lowered Sri Lanka's 2021 GDP growth forecast to 3.4% from 4.1% estimated in the April.

The downgrade is contained in ADB's Asian Development Outlook (ADO) Update released yesterday. It has also lowered the 2022 growth forecast to 3.4% from 3.6% made in the April Update of ADO. The downgrade reflects developments within South Asia as well as in all of developing Asia.

South Asia’s growth forecast has been lowered to 8.8% in 2021 from a 9.5% previous estimate. However, for next year, ADB expects South Asia to grow by 7% in comparison to a 6.6% estimate revealed in April this year. In 2020, South Asian economies contracted by 5.6% and Sri Lanka suffered a 3.6% dip.

In 2021, India is forecast to grow by 10%, lesser than the 11% previous estimated, but its GDP will pick up next year by 7.5%, higher as against 7% estimated earlier. 

Bangladesh’s growth estimates have been lowered for 2021 – a 5.5% improvement versus 6.8% estimated previously, and 6.8% next year, down from 7.2% previous forecast.

ADB lowered its 2021 economic growth outlook for developing Asia to 7.1% (from 7.3% in April), amid continuing concerns over the coronavirus disease (COVID-19) pandemic.

The growth outlook for 2022 is raised to 5.4% from 5.3%. New COVID-19 variants, renewed local outbreaks, the reinstatement of various levels of restrictions and lockdowns, and slow and uneven vaccine rollouts are weighing down the region’s prospects.

“Developing Asia remains vulnerable to the COVID-19 pandemic, as new variants spark outbreaks, leading to renewed restrictions on mobility in some economies,” said ADB Acting Chief Economist Joseph Zveglich, Jr. 

“Policy measures should not only focus on containment and vaccination, but also on continuing support to firms and households and reorienting sectors in the economy to adapt to a ‘new normal’ once the pandemic subsides to kickstart the recovery.”

COVID-19 cases in developing Asia have risen since the Delta variant of the virus emerged in April. New daily cases peaked at 430,000 in May. More than 163,000 new daily cases were recorded on 31 August. Meanwhile, vaccination progress in developing Asia remains uneven and lags behind that of advanced economies. As of 31 August, 28.7% of the region’s population had full vaccine protection, compared with 51.8% coverage in the United States and 58% in the European Union.

The recovery path within the region remains uneven. East Asia’s growth forecast for this year has been raised to 7.6% from 7.4% in April, as a surge in global demand fuels exports from the region. East Asia’s growth prospects for 2022 are unchanged at 5.1%. Growth projections for the People’s Republic of China, the region’s largest economy, remain at 8.1% in 2021 and 5.5% in 2022.

The economic growth outlook for Central Asian economies this year is raised to 4.1% from 3.4% projected in April, amid improved prospects for Armenia, Azerbaijan, Georgia, Kazakhstan, and Uzbekistan. The subregion’s 2022 outlook has improved to 4.2% from 4.0%.

The forecasts for Southeast Asia and the Pacific have also been revised downward, as economies in these subregions continue to grapple with new virus variants, continued lockdowns and restrictions, and slow vaccine rollouts. Southeast Asia’s growth projections for 2021 and 2022 have been lowered to 3.1% and 5%, respectively, from forecasts of 4.4% and 5.1% in April. The Pacific’s economy is set to contract 0.6% this year, compared with 1.4% growth projected in April, before expanding 4.8% in 2022.

Inflation in developing Asia is expected to remain in check, at 2.2% this year and 2.7% in 2022. The current trend of higher international commodity and food prices could stoke inflation in some of the region’s economies.