He International Monetary Fund (IMF) on Tuesday raised economic forecasts for Asia as China’s recovery propped up growth, but warned of the risks of persistent inflation and volatility in global markets, fueled by woes in the Western banking sector.
According to a report collected by the Reuters agency, the IMF foresees that the reopening of the Chinese economy will be essential for the region, and the indirect effects in Asia will focus on consumption and demand in the services sector, rather than investment. .
“Asia and the Pacific will be the most dynamic of the world’s major regions in 2023, driven mainly by the buoyant prospects for China and India,” the IMF said in its report on the regional economic outlook.
“As in the rest of the world, domestic demand is projected to remain the biggest driver of growth across Asia in 2023,” it said.
Asia’s economy is estimated to expand 4.6% this year after rising 3.8% in 2022, which would contribute around 70% of global growth, the IMF said, upping its forecast by 0 .3 percentage point since October.
China and India will be the main drivers, expanding by 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.
IMF: Western banks splash Asia
However, the IMF cut its forecast for Asian growth next year by 0.2 points to 4.4%, and warned of risks to the outlook, such as more rigid inflation than expected, slowing global demand and the impact of tensions in the US and European banking sectors.
“While the regional fallout from tensions in the US and European financial sectors has been relatively contained so far, Asia remains vulnerable to tightening financial conditions and sudden and disorderly asset appreciation,” the IMF said.
Although Asia has significant capital and liquidity buffers to weather market shocks, the region’s highly leveraged corporate and domestic sectors are “significantly” more exposed to a sharp rise in borrowing costs, it added.
The IMF also urged central banks in Asia—with the exception of Japan and China—to maintain a tight monetary policy to reduce inflation, which could remain stubbornly high due in part to robust domestic demand.
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