Easing supply chain hurdles are insufficient to offset falling industrial demand across the region in 2023

Industrial growth in Asia ex-China will slow to 1.3% in 2023 from 3.8% in 2022, as weak demand weighs on output, despite easing supply chain pressures. This is according to a briefing from Oxford Economics.

China’s industry will benefit from accommodative domestic policies. That said, the mainland’s industrial growth is only expected to rise 0.3ppts to 4.3% next year amid weakening external demand.

Falling input costs and improving supply prospects are good news, especially for those industries hit hard by shortages, such as the automotive sector. Nevertheless, demand prospects hold the key to Asia’s industrial outlook, according to the analysts.

The trends are already discouraging, it warns - especially for the more export-oriented manufacturers in North Asia.

Oxford Economics anticipates that China’s GDP growth will not be fast enough in 2023 to offset the fall in demand for Asia’s goods from the recession-bound advanced economies.

The anticipated rotation away from goods to services demand and signs of oversupply in the semiconductor industry are further drags on the external demand outlook.

Meanwhile, the post-pandemic recovery in domestic demand is likely to fade given rising interest rates and the anticipated slowdown in income growth.

There are both upside and downside risks to our baseline: much is riding on how China’s zero-Covid policy plays out in 2023, while a more aggressive US rate-hiking or stickier input prices bodes ill for Asian manufacturers.