The financial authority considers rising interest rates a risk to the region’s economic growth.
The International Monetary Fund (IMF) downgraded its economic outlook for Asia as tightening global currencies, rising inflation due to the war in Ukraine and a sharp slowdown in China dampened prospects for a recovery. recovery of the region.
While inflation in Asia remains lower than in other regions, most central banks must continue to raise interest rates to ensure inflation expectations are not lowered, the IMF said in the report. Asia-Pacific economic outlook released on Friday.
“Asia’s strong economic recovery earlier this year is losing momentum, with a weaker-than-expected second quarter,” said Krishna Srinivasan, Director of the IMF’s Asia and Pacific Division.
“Further tightening of monetary policy will be needed to ensure that inflation returns to target and inflation expectations remain well maintained.”
The IMF cut its growth forecast for Asia to 4% this year and 4.3% next year, down 0.9 percentage points and 0.8 points respectively from April. wide by 6.5% by 2021.
“As the impact of the pandemic wanes, the region faces new headwinds from global financial tightening and a slowdown in external demand is expected,” the report said.
Among the biggest difficulties is China’s rapid and widespread economic slowdown, said the IMF, which is blamed for the stringent COVID-19 lockdowns and worsening asset woes. than of the country, the IMF said.
“With the growing number of property developers defaulting on their debt over the past year, access to market finance for the industry has become increasingly difficult,” the report said.
“Risks to the banking system from the real estate sector are increasing as there are many risks.”
The IMF expects China’s growth to slow to 3.2% this year, down 1.2 points from its April forecast, after growing 8.1% in 2021. The two worlds are forecast to grow 4.4% next year and 4.5% in 2024, the IMF said.
While it is expected that China will gradually lift its strict COVID-19 regulations next year, the IMF does not see a quick solution to the problem. The real estate crisis in Beijingwhich it argues needs to be addressed holistically to support growth.
“It is hoped that with the party congress behind us, more attention will be paid to the policy response to these issues,” said Srinivasan.
“But we don’t see a quick solution to the real estate sector (crisis) because that could take longer,” he added.
As Asia’s emerging economies are forced to raise interest rates to avoid rapid capital outflows, the “conservative” use of foreign exchange intervention could help ease the burden on the economy, the IMF said. monetary policy in several countries.
The tool could be particularly useful for shallower foreign exchange markets in Asia, such as the Philippines, or where currencies don’t match up on a bank or business balance sheet, the IMF said. exchange rate fluctuations as in Indonesia.
It added: “Forex intervention should only be temporary to avoid side effects from long-term use, which could include increased risk-taking in the private sector.
