The Asian region faces a “stagflationary” outlook with economic growth being lower than previously expected and inflation being higher, a senior International Monetary Fund (IMF) official said on Tuesday (Apr 26).
“Monetary tightening will be needed in most countries, with the speed of tightening depending on domestic inflation developments and external pressures,” Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia and Pacific Department told a news conference.
The regional outlook, which follows the World Economic Outlook released last week, shows the growth forecast for Asia was cut to 4.9 per cent, impacted by the slowdown in China, which is having ripple effects on other closely-linked economies.
Inflation is now expected to rise 3.2 per cent this year, a full point higher than expected in January, she said.
“Despite the downgrade, Asia remains the world’s most dynamic region, and an important source of global growth,” Gulde-Wolf said in remarks prepared for delivery to a press briefing.
But the Russian invasion of Ukraine and Western sanctions on Moscow have driven up food and fuel prices worldwide, while major central banks are raising interest rates to combat inflation, which will pressure countries with high debt loads.
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A larger-than-expected slowdown in China due to prolonged or more widespread COVID-19 lockdowns or a longer-than-expected slump in the property market presents “a significant risk for the region”.
“This a challenging time for policymakers as they try to address pressures on growth and tackle rising inflation,” the IMF official said, noting that the headwinds will exacerbate the damage from the COVID-19 pandemic.
Outlooks vary within the region, depending on countries’ reliance on imported energy and links to China, with growth in Pacific island nations slowing sharply, while Australia saw a slight upgrade, she said.
Governments will need strong responses, starting with targeted aid to poor families most harmed by higher prices, the IMF said.
Many will need to tighten monetary policy amid rising inflation, while those with high debt loads may have to cut spending and even seek debt relief, the fund economists said in a blog post.
“Slower growth and rising prices, coupled with the challenges of war, infection and tightening financial conditions, will exacerbate the difficult policy trade-off between supporting recovery and containing inflation and debt,” the blog said.