Asia’s Economic Forecast 2023: IMF Highlights China’s Recovery and Risks from Inflation and Global Market Volatility

The reopening of China’s economy will be crucial for the region, with spillovers to Asia focusing on consumption and service sector demand rather than investment, the IMF said.

“Asia and the Pacific will be the most dynamic regions in the world in 2023, mainly thanks to the favorable prospects of China and India,” the IMF said in its regional economic outlook report.

“As in the rest of the world, domestic demand is expected to remain the main driver of growth in Asia in 2023.

Asia’s economy is expected to grow 4.6% this year after rising 3.8% in 2022, contributing about 70% of global growth, the IMF said, raising its forecast by 0.3 points percentage over the month of October.

China and India will be the main drivers of growth, with 5.2% and 5.9% respectively, although growth in the rest of Asia is also expected to bottom out this year, according to the report. report.

The IMF, however, cut its growth forecast for next year in Asia by 0.2 points to 4.4% and warned of risks to the outlook, such as higher inflation. stronger than expected, a slowdown in global demand and the impact of strains in the banking sector in the United States and Europe.

“Although the fallout from the strains in the US and European financial sectors has been relatively limited so far, Asia remains vulnerable to tighter financial conditions and sudden and disorderly asset revaluations,” the IMF said.

And while Asia has strong capital and liquidity reserves to weather market shocks, the region’s highly indebted businesses and households are “significantly” more exposed to a sharp increase in borrowing costs, added the IMF.

The IMF has also urged central banks in Asia – with the exception of Japan and China – to maintain tight monetary policy to reduce inflation, which could remain stubbornly high due in part to robust domestic demand. .

“The costs of failing to bring inflation back below target should outweigh the benefits of maintaining easy monetary conditions,” the IMF said.

“Insufficient tightening in the near term would require disproportionate monetary tightening thereafter to prevent high inflation from taking hold, making a deeper contraction more likely.