The Economic Outlook for Southeast Asia, China and India is a regular publication on Asia’s regional economic growth, development and regional integration processes. It focuses on the economic conditions of the Association of Southeast Asian Nations (ASEAN) member countries (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam) and two large economies in the region, the People’s Republic of China (hereafter “China”) and India. The Outlook was initially proposed at an informal reflection group on Southeast Asia in 2008 as a follow-up of the Council Meeting at Ministerial level (MCM) in 2007 and was accepted by ministers and senior officials from ASEAN countries at the occasion of the 2nd OECD Southeast Asia Regional Forum in Bangkok in 2009. The Outlook project was officially launched in 2010 and each edition is regularly presented on the occasion of the ASEAN/East Asia Summit. It was included in the OECD’s Southeast Asia Regional Programme (SEARP) at the Steering Group Meeting in Jakarta, Indonesia in March 2015, with the role of providing a horizontal view of activities, identifying emerging trends in the region and providing a backbone for the different streams of the Programme confirmed at the 2015 MCM. The Outlook serves as a strategic foresight and policy dialogue tool for the SEARP. The Outlook consultation group (OCG) was established in 2014 with OECD Delegations and embassies of Asian countries in Paris.

After setting out on the path to economic recovery in 2021, Emerging Asia is expected to continue its rebound in 2022. However, there remains a high degree of uncertainty in the first half of the year. Overall, Emerging Asian economies are expected to grow by 5.8% on average in 2022 and by 5.2% on average in 2023. Meanwhile, economic growth in the Association of Southeast Asian Nations (ASEAN) is projected to increase by 5.2% in 2022, followed by a 5.2% expansion in 2023. However, there remain some substantial differences among Emerging Asian countries in terms of the pace of the recovery.

The economic recovery in Emerging Asia, which began in 2021, is expected to continue in 2022, although great uncertainty remains. Countries in Emerging Asia faced persistent waves of COVID-19 cases from the Delta variant in 2021 and, more recently, from the Omicron variant. The potential emergence of new variants of concern in 2022 remains a risk. Furthermore, differences in economic outlook among Emerging Asian countries have become more visible, with approaches to managing the pandemic differing starkly. Looking ahead, Emerging Asian economies are projected to expand by 5.8% on average in 2022 and by 5.2% in 2023. Growth in real gross domestic product (GDP) is forecast to be 5.2% for the Association of Southeast Asian Nations (ASEAN) in 2022 and 5.2% in 2023, albeit with countries in the region varying in the pace of their recoveries. Indeed, economic growth in ASEAN will range from -0.3% in Myanmar to 7.0% in the Philippines in 2022 ().

The economic recovery that started in 2021 in Emerging Asia – ASEAN, China and India, is anticipated to continue in 2022. The chapter presents recent macroeconomic developments and provides the near-term outlook for key sectors. Financial markets were calm in 2021, but rising interest rates in advanced economies and geopolitical tensions such as the escalation of the ongoing war in Ukraine could pose a challenge in upcoming months. The pandemic had an impact on the banking sector, as evidenced by declining profitability and bank lending in a number of countries. In parallel, international trade continued to provide key support, but response to the Omicron variant could disrupt supply chains and weigh on growth. Headline inflation increased in a sustained way, in particular in the second quarter of 2021, amid rising energy prices. Monetary policy remains accommodative in most countries in response to subdued or fragile recoveries. Fiscal stimulus continued, but the impact on public finances is anticipated to be more moderate than in 2020.

The economic growth outlook is clouded by several risks. This chapter explores major health and non-health risks. The evolution of the pandemic remains key, as the Omicron variant has led to a sharp rise in caseloads in early 2022. Several challenges need to be addressed as regards the supply and distribution of vaccines, as well as vaccine hesitancy. Despite the rollout of vaccines, some non-pharmaceutical interventions should be maintained for the time being. Digital tools should continue to be developed, together with telehealth and telemedicine. The chapter also discusses several non-health risks. First, the gradual rise in inflation is raising concern, as economies strengthen and food prices rebound. Second, supply-chain disruptions are another downside risk due to their potential impact on economic growth and consumer prices. Finally, disparities within and across countries in Emerging Asia constitute another risk to the outlook.

The fiscal and monetary environment in Emerging Asia remains challenging. The current context calls for innovative financing solutions to finance the recovery post-pandemic. The chapter explores these solutions at length. First, policy makers should consider options for managing the stock of public debt, including participation in multilateral initiatives, swap arrangements, or debt buybacks. Alternative financing sources such as green, social and sustainability bonds can enable a sustainable and equitable recovery. The development of this market segment requires resolute policies, including robust regulatory frameworks, higher supply of sovereign bonds, and incentives to increase investor participation. In addition, insurance-linked securities could provide an extra layer of financial coverage against extreme events such as pandemics. There is also scope for regional co-operation in financing the recovery. For instance, sovereign catastrophe risk pools could provide a mechanism for Emerging Asian governments to enhance their financial preparedness against pandemics and other large external shocks.

There are several barriers to the development of bond markets in Emerging Asia. This chapter discusses these barriers and presents policy options for overcoming them. First, in countries with less-developed markets, institutional and legal frameworks are still limited. In these markets, levels of investor protection, and of transparency around tax processes, remain insufficient. In countries with more advanced capital markets, there is scope to further diversify the investor base and improve secondary-market liquidity. In parallel, regional initiatives continue to support bond market development. Second, increasing financial literacy could promote more participation in the market. The digital component should be integrated into the relevant frameworks to enhance financial literacy. Finally, a strong macroprudential framework is another enabling factor for bond market development. Policy makers need to give special attention to the interactions between the financial sector and the real economy. Furthermore, macroprudential policy will be key for the stabilisation of cross-border capital flows post-pandemic.