TOKYO: The International Monetary Fund slashed forecasts for Asia’s economic growth on Tuesday, with rising inflation forcing many central banks to tighten monetary policy even as exports face the brunt of slowing growth in trading partners like USA.
The downgrade underscores growing uncertainty over Asia’s recovery from the COVID-19 pandemic, as gloomy growth prospects for the US, Chinese and euro zone economies fuel fears of a global recession.
Monetary policy divergence from continued interest rate hikes in the United States is likely to continue to strengthen the dollar, worsening emerging market debt problems and forcing some to raise rates further to prevent their currencies fall too much, the IMF said in its World Economic Outlook report.
“A widening debt crisis in (emerging) economies would weigh heavily on global growth and could precipitate a global recession. Further US dollar strength can only aggravate the likelihood of debt distress,” he said.
The IMF now expects emerging Asian economies to grow 4.4% this year and 4.9% in 2023, down 0.2 and 0.1 percentage points, respectively, from its July projections, after an expansion in the 7.2% in 2021.
The cut largely reflects a slowdown in growth in China to 3.2 percent this year from an 8.1 percent expansion in 2021, as a result of the country’s strict COVID-19 lockdowns and worsening pandemic. real estate market crisis, said the IMF.
The world’s second-largest economy is expected to see growth pick up to 4.4% in 2023, 0.2 point below the IMF forecast in July.
The Association of Southeast Asian Nations economies of Indonesia, Malaysia, the Philippines, Singapore and Thailand (ASEAN-5) are expected to expand 5.3 percent this year from 3.4 percent growth in 2021, according to the IMF report. Growth was projected to slow to 4.9 percent in 2023 due to weaker demand in major trading partners such as China, the euro zone and the United States.
ASEAN economies may also see growth weighed down by higher food and energy prices, which sap household purchasing power, and rapid monetary tightening to curb inflation, it said.
The IMF expects Japan’s economy to grow 1.7% this year, unchanged from its July projection, and 1.6% in 2023, down 0.1 point.
Japan’s 2023 downgrade reflects an expected weakening in consumption attributed to rising inflation and sluggish wage growth, according to the report.
(Jacqueline Wong edit)