IMF Raises Asia’s Economic Growth Forecast, But Warns of Global Market Volatility

International Monetary Fund (IMF)

The International Monetary Fund (IMF) has increased its economic growth forecast for Asia, citing the recovery of China’s economy as a key factor. However, the IMF also issued a warning about the risks of continued inflation and global market volatility, fueled by the sluggishness of the Western banking sector.

According to the IMF’s regional economic outlook report, the reopening of China’s economy will be crucial for the region, as it will lead to an increase in consumption and demand for services rather than investment.

The report states, “Asia and the Pacific will be the most dynamic region in the world in 2023, driven mainly by strong prospects for China and India. Like elsewhere in the world, domestic demand is expected to remain the biggest growth driver in Asia in 2023.”

The IMF predicts that Asia’s economy will grow by 4.6% this year, up from 3.8% in 2022, contributing to around 70% of global growth. The organization has revised its previous estimate by 0.3 percentage points since October.

China and India are expected to be the main drivers of this growth, with expansions of 5.2% and 5.9%, respectively. However, growth in other parts of Asia is expected to reach its lowest point this year.

Despite the positive outlook, the IMF has lowered its growth forecast for Asia next year by 0.2 percentage points to 4.4%, citing the risks of higher-than-expected inflation, slowing global demand, and the impact of pressure on the US and European banking sectors.

“While spillovers to the region from pressures in the financial sector of the US and Europe have so far been relatively contained, Asia remains vulnerable to sudden and disorderly tightening of financial conditions and asset repricing,” said the IMF.

While Asia has strong reserves and liquidity buffers to withstand market shocks, influential corporate and household sectors in the region are significantly more vulnerable to sharp increases in borrowing costs.

The IMF also urged central banks in Asia – excluding Japan and China – to maintain tight monetary policies to curb inflation, which could remain high due to strong domestic demand.

“The costs of failing to bring inflation under control are likely to be greater than the benefits of maintaining loose monetary conditions,” said the IMF.

“Insufficient tightening in the short term will require more disproportionate monetary tightening later on to avoid high inflation becoming entrenched, making a larger contraction more likely.”

Overall, the IMF’s report suggests that while Asia’s economic growth is expected to continue its upward trend, risks such as inflation and market volatility cannot be overlooked, and governments and central banks must remain vigilant to avoid potential crises.