IMF Cuts Asia's Economic Forecasts

Amid global monetary tightening, rising inflation, and China's sharp slowdown, the International Monetary Fund (IMF) has cut its Asian economic forecasts to 4.0% this year and 4.3% next year, down 0.9% and 0.8% from April, respectively.

IMF Cuts Asia's Economic Forecasts
Image credit: File Photo [via Reuters]

Facts

  • Amid global monetary tightening, rising inflation, and China's sharp slowdown, the International Monetary Fund (IMF) has cut its Asian economic forecasts to 4.0% this year and 4.3% next year, down 0.9% and 0.8% from April, respectively.
  • In its report released Friday, the IMF said that while inflation in Asia remained controlled compared to other regions, most central banks should keep raising interest rates to ensure inflation expectations don't become de-anchored.
  • Following a regional growth rate of 6.5% in 2021, the forecast comes as China's growth is expected to slow to 3.2% this year amid strict COVID lockdowns and worsening property woes. According to the IMF, however, its economy is forecast to grow 4.4% next year and 4.5% in 2024.
  • Another factor in China's slowdown is real estate. The agency said, "With a growing number of property developers defaulting on their debt over the past year, the sector's access to market financing has become increasingly challenging."
  • The agency said a “judicious” use of foreign exchange intervention could help ease the burden on monetary policy, particularly for countries with "shallower foreign exchange markets” or where currency mismatches on bank or corporate balance sheets heighten exchange-rate volatility risks.
  • The US Federal Reserve's (Fed) aggressive monetary policy has also caused "tighter financial conditions" for Asia, and the Ukraine war has caused a spike in commodity prices and a "deterioration" of trade for many Asian countries, leading to currency depreciation.

Sources: Reuters, Al Jazeera, One America, Dnyuz, and Investment Week.

Narratives

  • Anti-China narrative, as provided by Reuters. Despite glaring evidence, such as this latest report, China continues to ignore the negative impact of its zero-COVID strategy on the global economy. While other countries have been open for a while now, China has allowed its export industry to deteriorate, affecting businesses and economies worldwide.
  • Pro-China narrative, as provided by Global Times. China's COVID response isn't the culprit behind the current conditions; the US' is: After creating its own inflation disaster through generous stimulus spending during the pandemic, the Fed overcompensated by raising rates exponentially, thereby placing other countries in a foreign exchange rate crisis — a policy it seems to be stubbornly sticking with despite the toll on the global economy, including its allies.