IMF forecasts a 4.6% increase in Asia’s GDP this year.
IMF predicts a small slowdown in growth to 4.4% in 2024.
IMF: China and India are the main forces behind growth.
Risks include the fallout from U.S. and European financial crisis.
Most Asian central banks must maintain a strict monetary policy.
(Reuters) – May 2. The International Monetary Fund (IMF) upped its economic projection for Asia on Tuesday as the rebound in China supported the region’s expansion, but it also issued a warning about the dangers of chronic inflation and market instability brought on by problems in the Western banking sector.
According to the IMF, the reopening of China’s economy would be crucial for the region since the spillover to Asia is expected to be driven more by demand for goods and services than by investment. According to the IMF’s regional economic outlook report, “Asia and Pacific will be the most dynamic of the world’s major regions in 2023, primarily driven by the buoyant outlook for China and India.”
In 2023, domestic demand is anticipated to continue to be Asia’s major source of growth, much like the rest of the globe.
The IMF revised its prediction upward by 0.3 percentage points from October, expecting Asia’s GDP to rise 4.6% this year after rising 3.8% in 2022 and providing almost 70% of global growth. With growth rates of 5.2% and 5.9%, respectively, China and India will be the main drivers, but the survey predicted that growth in the rest of Asia would also peak this year.
The IMF, however, lowered its prediction for Asian growth for the next year by 0.2 percentage points to 4.4% and cautioned against risks to the outlook, including higher-than-anticipated inflation, a weakening of global demand, and the effects of stress in the U.S. and European banking sectors.
Asia remains sensitive to tighter financial conditions and to unexpected and disruptive repricing of assets, the IMF warned, even if spillovers from stress in the U.S. and European banking sectors have so far been largely limited.
A sudden rise in borrowing rates would also “significantly” raise the exposure of the region’s highly indebted business and consumer sectors, even if Asia has robust capital and liquidity buffers to fight off market shocks, it noted.
In order to reduce inflation, which might stay stubbornly high owing in part to strong domestic demand, the IMF also advised central banks throughout Asia, with the exception of Japan and China, to maintain a restrictive monetary policy.
“The costs of failing to bring inflation below target are likely to outweigh any benefits from keeping monetary conditions loose,” the IMF said.
A greater contraction would be more probable if there was insufficient monetary tightening in the near term to prevent excessive inflation from becoming entrenched.
While China will play a significant role in the region’s economy, the country’s real estate market still poses a danger that policymakers must address to guarantee a balanced recovery, according to the IMF.
Larger developers have generally profited from recent government initiatives to make funding for developers easier. However, Thomas Helbling, deputy head of the Asia and Pacific Department at the IMF, said that parts of China with smaller, weaker players have yet to show indications of a recovery.
At a media event in Hong Kong, Helbling said, “While the government’s (recent) effort has stabilized the market, it should proactively support the restructuring of weaker developers who are still suffering.”
Following a run of developer defaults and a decline in house sales, China’s regulators have been working to stabilize the industry, which represents a fifth of the country’s GDP.
“The rebound has not yet happened for places with weaker housing markets. To reduce possible hazards, we need further policy measures, according to Helbling.