Asia Edge: Off the boil: Revisiting the outlook

Research evidence excerpt

Asia Edge: Off the boil: Revisiting the outlook

roducts, far outpac-

ing the 34%oya rise in exports and pushing Vietnam’s tech

First, we leave our growth forecasts for all four countries trade balance into an unprecedented shortfall (Figure 2). The

broadly unchanged. Our global baseline already assumed a jump in imports could reflect several factors, including the

ceasefire in the Middle East in June, followed by a gradual tech cycle, higher input prices, and domestic investment, but

reopening of the Strait of Hormuz. We did not assume a we see no compelling evidence in the data in favor of any

meaningful impact from ongoing energy-conservation mea- explanation for now. We therefore assume the upswing will

sures, such as fuel rationing in Sri Lanka and early closures of prove temporary and that electronics trade will return to more

markets in Pakistan, and have so far seen only limited disrup- familiar patterns. We have lowered our forecast for Vietnam’s

tions from higher input costs or constraints on input availabil- current account surplus to 1.7% of GDP in 2026 from 1.8%

ity in most countries. We have already revised our Sri Lanka previously, but raised our 2027 projection to 5.3% of GDP

growth forecast down to 3.2% from 4.0% previously (note), from 2.6%, driven by declining oil and electronics imports

mainly reflecting the hit to tourism and a less favorable global and buoyant tech exports.

backdrop.

On the fiscal side, we have adjusted our state budget deficit

Across the region, we now see inflation rising less than ini- forecast to 4.2% of GDP from 4.0% previously, reflecting the

tially feared, while current account deficits will widen by less cumulative cost of tax relief measures.

than previously expected—and even switch to a surplus in