IMF slashed this year’s economic growth forecast for Asia and warned that a fresh wave of COVID-19 infections poses downside risks to the outlook
The International Monetary Fund (IMF) on Tuesday slashed this year’s economic growth forecast for Asia and warned that a fresh wave of COVID-19 infections, supply chain disruptions and inflation pressures pose downside risks to the outlook.
China’s economy will grow by 8.0 percent this year and 5.6 percent in 2022, but the recovery remains “unbalanced” as repeated coronavirus outbreaks and fiscal tightening weigh on consumption, the company said.
Economic Growth
Any “untimely policy normalization or misconstrued policy communications” by the US Federal Reserve could also trigger significant capital outflow and higher borrowing costs for Asian emerging economies, the company said.
In its regional outlook report, the IMF cut this year’s economic growth forecast for Asia to 6.5 percent, down 1.1 percentage points from its projection made in April, as a spike in Delta variant cases hit consumption and factory output.
The IMF raised its Asia growth forecast for 2022 to 5.7 percent from a 5.3 percent estimate in April, reflecting progress in vaccinations.
Asian Advanced Economies
“Although Asia and Pacific remain the fastest growing region in the world, the divergence between Asian advanced economies and emerging market and developing economies is deepening,” the company said.
“Risks are tilted to the downside,” mainly on uncertainty over the pandemic, supply chain disruptions and potential spillovers from US policy normalisation, it said.
China’s economy hit its slowest pace of growth in a year in the third quarter, highlighting the challenge policymakers face as they seek to prop up a faltering recovery while reining in the real estate sector.
India is expected to expand 9.5 percent this year, while advanced economies like Australia, South Korea, New Zealand and Taiwan benefit from high-tech and commodity booms, the company said.
But ASEAN-5 countries – Indonesia, Malaysia, Philippines, Singapore, Thailand – still face “severe challenges” from a resurgent virus and weakness in service consumption, it said.
“Over the coming months, new infection waves remain the biggest concern,” the IMF said.
While inflation expectations are “generally well-anchored” in Asia, higher commodity prices and shipping costs, coupled with the continued disruption of global value chains, are amplifying concerns over persistent inflation.
Most Asian emerging economies must maintain monetary support to ensure a lasting recovery, but central banks “should be prepared to act quickly if the recovery strengthens faster than expected or if inflation expectations rise,” the company said. (ndtv)
