Exports and imports grew more than projected in the ADB's 2021 update thanks to a surge in global demand for clothing from Bangladesh, ADB says.
Faster import growth widened the trade deficit, but growth will be supported by private investment with imports of capital machinery and raw materials for garments, it said in its latest estimates presented in a regular supplement of the Asian Development Outlook (ADO) 2021.
The expected implementation of fiscal and monetary stimulus adds to pressure from higher fuel prices, it adds.
However, South Asia is forecast to expand less than projected in the Update for 2021, reflecting a modest downward revision to forecast GDP growth in India with manufacturing now projected to grow more slowly than anticipated in the Update.
In contrast, other economies in the region, like Bangladesh, have benefitted from higher global demand and rebounding domestic activity with Covid-19 largely contained across the subregion.
ADB Acting Chief Economist Joseph Zveglich said, “Developing Asia’s steady progress in dealing with COVID-19, through continued vaccination drives and more strategic application of containment measures, helped boost growth prospects in the early part of the year.”
However, new outbreaks in the third quarter muted gross domestic product growth, and the advent of the Omicron virus variant is causing renewed uncertainty. Recovery efforts will have to take these developments into consideration, he added.
However, the Asian Development Bank warned Tuesday that the highly mutated Omicron coronavirus variant could have a "substantial" economic impact, as it trimmed its 2021 and 2022 growth forecasts for developing Asia.
Despite a sharp drop in infections and increased vaccination across the region stretching from the Cook Islands in the Pacific to Kazakhstan in Central Asia, the global surge in Covid-19 cases suggested "the pandemic will take time to play out", it said.
The Philippines-based lender forecast growth of 7.0 percent in 2021 -- compared with its previous prediction in September of 7.1 percent -- and 5.3 percent in 2022, down from its earlier forecast of 5.4 percent.
While the region was expected to sustain a "strong rebound" and keep inflation at manageable levels, the emergence of Omicron had brought "additional uncertainty", the ADB said.
Recent developments in Europe show that extensive virus outbreaks can occur even in highly vaccinated countries and force governments to retighten mobility restrictions, it added.
“As it (Omicron) appears to be significantly more transmissible than earlier variants, its economic impact could be substantial. Vaccination rates have increased across developing Asia in recent months, with nearly half of the population fully protected against Covid-19 at the end of November, compared with less than a third at the end of August, the ADB said.
That has enabled many economies to start reopening, boosting manufacturing activity and trade in the region.
But coverage remained uneven -- 20 economies still have less than 40 percent of their populations fully vaccinated, "leaving them susceptible to renewed outbreaks".
And the region still lagged the nearly 60 percent coverage in the United States and more than 67 percent in the European Union.
"New pandemic waves could reverse the current reopening trend in many economies owing to still-insufficient vaccination coverage," the ADB warned.
While a resurgence in Covid-19 infections was the main threat, the ADB also flagged a prolonged downturn in China's housing market, rising inflation and global supply disruptions as risks to the outlook.
China -- where several real estate companies have been plunged into financial crisis following a debt crackdown by Beijing -- was expected to grow 8.0 percent this year and 5.3 percent in 2022.
The ADB said the growth rates were slightly slower than its previous predictions.