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ADB & IMF: ‘Developing’ Asia Will Lead The World In Economic Growth

Updated: Jun 12, 2023

Assessments of Southeast Asia’s economic outlook published by the Asian Development Bank and the International Monetary Fund in 2023 find reasons for optimism. ‘Developing’ Asia will lead the world in economic growth over the next two years.


Southeast Asian economies weathered the pandemic relatively well, notwithstanding hardship due to lockdowns. The geopolitical challenges brought by increasingly antagonistic competition between the United States and China are a looming threat to the region’s prosperity, but so too are the perverse growth effects of protectionist policies.


Southeast Asia has benefited from limited decoupling between the Chinese and US economies, as manufacturers move some production processes out of China to avoid tariffs and blacklists. Although some relocations have taken the form of ‘re-shoring’, more investment has moved to other Southeast Asian countries. Singapore, Vietnam, Malaysia and Indonesia registered relatively strong inflows of FDI in the last two years. Competition among external powers has also provided Southeast Asian elites with bargaining leverage in infrastructure projects and access to finance.


Beneath these recent developments, there is a deeper structure that will shape the Southeast Asian experience of increased geopolitical tension.


First, there is the basic openness of economic development in Southeast Asia. The region’s growth and industrialisation depends on external markets and foreign investment. High growth has mostly occurred when ‘internationalist’ coalitions advanced their core interests and create access to international markets and investment.


Southeast Asian countries also showcase a tremendous variety of domestic institutions — the structures and embedded rules that guide action and make it more or less possible to carry out different development tasks. Specifically, state and private sector institutions shape the ability of individuals and companies to overcome problems of coordination, commitment and collective action. Countries that fail to overcome such problems typically fail to provide sustainable economic development.


Given Southeast Asia’s institutional variety, we can expect continued unevenness in how countries in the region will respond to current geopolitical challenges and opportunities. Some are better equipped than others to benefit from supply chain restructuring and investment shifts motivated by the desire to secure supplies or protect against geopolitical risk. Mineral endowments coupled with nationalist policies have motivated recent investments in Indonesia, while Thailand’s established capabilities in the automotive sector make it an appealing investment site for Chinese and other investors seeking to diversify.


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