Int’l Monetary Fund cuts Asia’s economic growth forecast in latest regional projection

• Contraction in China’s growth drags down regional recovery prospects
• Inflation has risen above most central bank targets
• Says monetary policy should be ready to tighten faster, if rise in core inflation turns out to be more persistent
• Asserts need for “strong multilateralism” to mitigate geoeconomic fragmentation

The International Monetary Fund (IMF) yesterday cut the economic growth forecast for Asia to 4 percent this year, down 0.9 percent points from the projections it drew up in April.

The slowdown and lower expectations are largely attributed to the grim recovery prospects of China, which is brining the overall growth of the region down. 

The IMF expects China’s growth to slow to 3.2 percent this year, a 1.2-point downgrade from its April projection, after an 8.1 percent rise in 2021. The world’s second largest economy is seen growing 4.4 percent next year and 4.5 percent in 2024, according to the IMF.

“After the strong rebound of 6.5 percent posted in 2021, growth in Asia and Pacific is expected to moderate to 4.0 percent in 2022 amid an uncertain global environment and rise to 4.3 percent in 2023,” the IMF said in its latest regional economic outlook for Asia and Pacific that was released yesterday.

The report pointed out that inflation has risen above most central bank targets but is expected to peak in late 2022.  “As the effects of the pandemic wane, the region faces new headwinds from global financial tightening and an expected slowdown of external demand,” it added.

Asia remains a relative bright spot in an increasingly lethargic global economy but is expected to expand at a rate that is well below the average rate of 5.5 percent seen over the preceding two decades. 

The report, compiled from world economic and financial surveys, finds that policy support is gradually being withdrawn as inflation rises and idle capacity is utilised. However, it said monetary policy should be ready to tighten faster, if the rise in core inflation turns out to be more persistent. The region’s rising public debt levels call for continued fiscal consolidation, so interventions to mitigate global food and energy shocks should be well targeted, temporary and budget neutral, the IMF said.

The IMF called for structural reforms to boost growth and mitigate the scarring that is expected from the pandemic, especially making up for lost schooling through investments in education and training, promoting diversification, addressing the debt overhang from the pandemic and harnessing digitalisation. 

“Strong multilateralism—including through international organisations, the Group of Twenty and regional processes—will be needed to mitigate geoeconomic fragmentation and deliver much-needed progress on climate change commitments,” the IMF said.

The report also drew attention to the fact that Asia’s recovery from the COVID-19 pandemic continues in the face of multiple headwinds. Countries in the large and diverse region are on different tacks in their management of the pandemic and their outlook for growth and inflation.