As per International Monetary Fund, global economic growth will slow down from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023. Inflation will rise from 4.7% in 2021 to 8.8% in 2022, followed by a decline to 6.5% in 2023 and to 4.1% by 2024.
United States Federal Reserve has gone for aggressive rate hikes. Central banks in other leading economies too got indulged in the race. World Bank has been vocal against the move.
The World Bank has already cut down global growth projections from 5.7% in 2021 to 2.9% by 2022 end and the story will continue till the 2023-24 period (GDP growth may go down to as low as 0.5% to 0.4% per capita). The developing economies will witness a per capita income nearly below 5% than the pre-COVID period. The challenge for the central banks will be to keep the core inflation at or below 5%, so expect consistent monetary policy rate hikes as well.
What’s in store for smaller nations?
Analysing World Bank’s zone-wise projection data for the financial year 2022-23 shows a recession threat for the USA, Canada, United Kingdom, Germany, Japan, South Korea, and countries outside Eurozone. And the phenomenon has been underway.
Some developing, middle and low-income economies still look in better shape. The article will not only present the exact numerical GDP growth projections for those nations in the coming few months (taking the help of the World Bank’s June data), but will give the readers know-how about these economies.
Here is the list of small economies predicted to sail the recession wave without many hiccups throughout 2022 and 2023: Cambodia (4.5%-5.8%), Fiji (6.3%-7.7%), Indonesia (5.1%-5.3%), Mongolia (2.5%-5.8%), Thailand (2.9%-4.3%), Vietnam (5.8%-6.5%), Bahamas (6.0%-4.1%), Barbados (11.2%-4.9%), Dominica (6.8%-5.0%), Guyana (47.9%-34.3%), Nepal (4.1%), Bhutan (4.7%). The percentages here indicate the GDP growth projections for the coming months.
Cambodia has textiles, tourism, and agriculture as its main economic activities. Since its transformation from a planned one to a market-driven one in 1995, Cambodia has seen steady GDP growth, despite facing political and civil unrest during the 1997-98 periods. While its garment industry has driven its export figures, the nation has recently found oil and natural gas reserves in its off-shore. The country’s foreign policy is a business-oriented one, as it has enlisted itself in ASEAN and WTO trading systems. It has emerged as an attractive investment destination due to its low wages, cheap labour force, easy raw materials access, and favorable tax system.
IMF recently said that the country’s economy will grow by 5% in 2022, followed by 5.4% in 2023. However, it will be constrained by slowing demand in its main export markets in Europe and the United States.
Fiji, with a population of less than 1 million, is one of the most developed ones among Pacific islands, with agriculture and fishery being the primary source of income among the residents. It earns foreign exchange through sugar, mining exports, and tourism.
As per FocusEconomics, Fiji is estimated to be among the top five fastest-growing economies in the world for 2022, as the nation’s growth rate world witnessed an average growth of 7.7% in 2022-2026.
Indonesia is the largest economy in Southeast Asia. Classified as a ‘newly industrialized’ nation, it is the world’s 17th largest economy by nominal GDP standards and 7th in terms of PPP (Purchasing power Parity) figures of GDP. It has a growing digital economy, which is expected to go over the USD 130 billion mark by 2025. As per their governmental predictions, by 2045, Indonesia will become the world’s fourth-largest economy, with a growth rate of 5-6% and a GDP of USD 9.1 trillion.
As per the latest World Bank forecast, Indonesia will experience a 5.2% growth in 2022 due to the post-COVID reopening of the economy, along with the rise in commodity prices. The GDP growth will maintain an average of 4.9% over the medium term (2023-25). Domestic inflation has reached 5.7% in October 2022, with food prices increasing by 7.9% in September. Inflation will peak at 4.5% in 2023 and will remain at 3.5% in 2024 and 2025.
Mongolia’s economy is based on farming and livestock. Mongolia’s economy is dependent on Russia and China, and has seen slowdowns in past due to the geopolitical crisis. Of late, mineral activities have driven Mongolia’s GDP growth (It reached its record high of 11.7% in 2013).
The nation has been witnessing a rise in flour and rice prices, as the overall inflation reaches 14.5%. Coal prices have gone up by 40%, gasoline is costing 65% more than its February 2022 prices. It depends on Russia for energy imports (some 60%), while its export market lies in China (over 80%). Economic activities with Beijing constitute over 40% of Mongolia’s GDP.
In 2021, the country’s economy contracted by 4.4%. Unemployment peaked at 8.5% in April of that year and then fell to 5.4% in 2022. Mining revenues, which account for over 20% of GDP, fell by almost a quarter in the first two months of 2022. Iron ore exports to China too declined by 38% in 2022.
The European Bank for Reconstruction and Development (EBRD) has given a sovereign loan of up to USD 62.8 million and a capital grant of up to 5 million euros to realize a 220-kilometre double-circuit 220kV transmission line in the country. Also, Mongolia has opened a new rail line with China, in order to boost its exports to Beijing.
Thailand’s economy revolves around exports. In 2019, it earned about 60% of its GDP through this avenue. Like Indonesia, It falls in the same category of ‘Newly Industrialised Country’, with a GDP size of 16.316 trillion baht (USD 505 billion), as per the 2018 figures. Industrial and service sectors comprise 39.2 of Thai GDP, followed by agriculture (8.4%), trade, communications and logistics (over 23%), construction, mining (4.3%), and tourism (24.9%). The nation has come up with a policy of allowing foreigners to live and invest in its economy, as telecommunications and trade in services show the potential to grow further.
Thailand’s economy is projected to recover to its pre-COVID level in 2022, but the pace will be slower than expected in 2023. The economy will expand by 3.4% in 2022 and 3.6% in 2023, as against the World Bank’s projection of 4.3%, due to a faster-than-expected decline in global demand. Growth accelerated to 4.5% in 2022 due to resurgent private consumption and strong tourism inflows after the economy reopened in May.
Vietnam is the 37th largest economy right now, as per the nominal GDP numbers. In terms of PPP standards, its GDP stands as the 23rd largest. Apart from being an active member of APEC, ASEAN and WTO, Vietnam uses directive and indicative planning as per the old five-year method. Since the 1980s, it has followed this method and excelled in the small and medium enterprises (SMEs) sector. Its agricultural export is also steadily growing, apart from the country getting a handsome chunk of Foreign Direct Investments (FDIs). It has an attractive tourism sector as well. As per the latest World Bank projections, while China’s GDP growth has been lowered to 2.8%, Vietnam continues to drive Asia’s growth bandwagon with a 7.2% mark.
Vietnam is spending around 6% of its GDP on infrastructure, the highest among the ASEAN region. Its big-ticket projects are the 1,800 km HCMC–Hanoi highway; the Long Thanh International Airport, metro projects in Hanoi and HCMC, as well as thermal and waste-to-energy power plants. The government also has announced incentives for hi-tech industries. It has also banned the sale of used machineries more than 10 years old.
While the EU-Vietnam free trade agreement (EVFTA) has boosted the country’s exports despite COVID, in 2021, the UK-Vietnam free trade agreement (UKVFTA) helped the bilateral trade to reach close to USD 6.6 billion. Similar increases were also noted with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as Vietnam’s exports to Canada and Mexico got boosted.
The country is offering competitive wages, thereby giving countries low-cost manufacturing alternatives. Over 40% of Vietnamese university graduates major in science and engineering and the country is among the top 10 countries with the most engineering graduates.
Apart from growing fuel prices, the country is also facing headwinds due to slowing demand, rising inflation, and geopolitical circumstances. S&P Global’s Purchasing Managers’ Index for Vietnam (which measures manufacturing activity) fell to 50.6 in October from 52.5 in September, the lowest since October 2021. The Vietnamese dong has lost 9.1% of its currency value against the dollar in 2022. However, the depreciation has been lower compared to other countries.
Vietnam’s long-term growth remains stable, with manufacturing businesses eyeing to relocate here from China. The country’s FDI figures look healthy as it received USD 17.5 billion till October 2022, a 15% rise from 2021.
The Bahamas is the richest among the island countries in the Caribbean region. While it has growing tourism and infrastructure industries, it has manufacturing and agriculture contributing to its GDP as well (around 10%). Financial services constitute the second-most important sector of the Bahamian economy, accounting for about 15% of GDP. It gets around 17% of its GDP from financial services (classified as an offshore one) as well, with the companies only having to pay payroll taxes towards the country’s social insurance benefits.
However, Bahamas, known as ‘Tax Haven’ for cryptocurrency businesses, is set to suffer massively due to the recent collapse of the FTX Exchange. Not only FTX, but many crypto companies also have their headquarters in the island country and it would be interesting to see whether and how these headwinds affect the country’s economy.
The economy of Barbados, which is projected to grow around 12% in 2022, became a high-income one, using its tourism and the offshore sectors, after staying in recession from 1990-93. Foreign Direct Investments (FDIs) has also been a key contributor to the island nation’s economy. Its main export items are fish and milk, while it imports natural rubber and cocoa beans from Nigeria. Talking about its sugar industry, the total number of factories within its territory has come down from 10 to 2. The World Bank’s 11.2% growth projection for the nation comes despite it defaulting on bonds in 2018 and currently having the fourth largest debt-to-GDP ratio in the world.
Barbados government has recently announced that the country’s growth in 2022 was higher than in 2021 despite the challenges faced. The year-end growth will be 10% more than the 2021 figures. IMF too has approved USD 302 million in loans for Barbados.
Dominica relies upon banana agriculture, apart from its financial services and passport sales. Despite the 6.8% growth projections, Dominica’s economy faces challenging times ahead as the European Union plans to cut down its banana import. The island nation has been working towards agricultural diversification, especially in fruit farming. The country has also entered the offshore financial services sector, apart from its steadily growing ecological tourism.
Unlike Barbados and Dominica, Guyana has seen fast economic growth. In 2021, when the whole world was battling economic disruptions due to COVID, it recorded some 19.9% of GDP growth. The nation’s turning point came in 2015, when an offshore oil field was found some 120 miles away from its capital Georgetown. Economic activities around that area have been going on since 2019.
Guyana also announced in late 2022 about developing a downstream oil and gas industry including a power generation plant and a crude oil refinery. A contract has been signed for the construction of a 300-megawatt power plant in an integrated facility with a Natural Gas Liquid (NGL) plant, at an estimated USD 759 million. This is seen as a first step to building up a power grid to power the industries. Guyana’s per-capita GDP has expanded over five times since the mid-2000s due to the new oil export revenue mechanism.
Nepal’s economy falls under the ‘developing’ category, with agriculture and remittances being primary sources of its income. Like its neighbour India, Nepal too used five-year plans and in 2002, privatized 17 of its state business enterprises, apart from making its domestic currency convertible to the counterparts of other nations. Farming gives the nation 31.7 of its GDP. Remittances add a further 9.1%. While restricted import activities, the dengue outbreak, and low tourist inflow have taken out much of the sheen of the country’s economy ahead of the festival season.
Over one million Nepalis have left the country, shows government data, which tracked the pattern since 2019. As per the analysts, the fiscal year of 2022-23 may just see another one million leaving the nation, as the political instability grows. Official statistics show that 347,340 Nepalis had left the country by the first five-month period of the current fiscal year. Experts are even saying that the country’s proliferating imports show it has turned into a remittance-driven economy from a farm economy. Increasing domestic production, earning more foreign currency through electricity exports, creating more development projects and jobs, along with commercializing the agriculture sector are some of the measures suggested by the analysts, if the country wants to match or even do better than the World Bank’s 4.1% GDP growth projections.
Bhutan is also reliant on agriculture and forestry for its economy. Despite the nation’s rugged terrain making it unfit for infrastructure activities, it has one of the richest per capita GDP in South Asia (USD 3,491), but as per global rankings, it stands at 153rd. Its total GDP is USD 2,653 million and as per the International Monetary Fund (IMF) rankings, stands at the 178th. Apart from the benefit of having good trade and financial ties with India, the reopening of its tourism sector after two years of COVID hiatus will likely help the country’s economy to stay afloat amid the recession threat.
Bhutan is likely to be upgraded from ‘Least Developed’ status to ‘Middle-Income’ one after successfully clearing two recent United Nations Reviews. The process is due in 2023 and will likely draw more foreign investments, once the upgrade takes place.
Apart from these regions, the World Bank has backed the sub-Saharan countries to do well in this tight environment. The region will witness average GDP growth of over 7% in 2023.
While the big, advanced economies are reeling currently, some of the smaller economies have now put up a fight. How long that continues, remains to be seen.