## A YEAR OF DIFFICULT TRADE-OFFS

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---

### Recent developments
- Presentation by S. Jay Peiris and Ranil Salgado, Tokyo, Japan, May 20, 2022 (IMF, Asia and Pacific Department - Regional Economic Outlook).
- The Ukraine war described as an “economic earthquake”.
- Omicron wave: Asia hit but with limited impact on mobility amid high vaccination rates (data as of April 25, 2022).
  - Mobility measured as percent deviation from baseline (Jan 3–Feb 6, 2020), 7-day moving average; median within Asia.

### Global inflation, monetary tightening, and financial conditions
- Headline inflation outturns and forecasts informed tightening in US and Euro Area.
- Federal Funds Rate: market expectations shown as of May 9, 2022 (Federal Funds futures).
- Euro Area monetary policy rates: comparisons for February 2022, March 2022, April 2022 based on Implied Overnight Index Swaps.
- FOMC median dots and market expectations:
  - FOMC median dots (Mar. 2022) vs (Dec. 2021) and current market expectations compared to neutral [nominal] rate estimate.

### Growth projections and revisions (IMF World Economic Outlook, April 2022)
- World and Advanced Economies growth:
  - World 2021: 6.1; Revision from Jan. 2022: 0.2; 2022: 3.6; Revision from Jan. 2022: -0.8; 2023: 3.6; Revision from Jan. 2022: -0.2.
  - Advanced Economies 2021: 5.2; 2022: 3.3; 2023: 2.4.
  - U.S. 2021: 5.7; 2022: 3.7; 2023: 2.3.
  - Euro Area 2021: 5.3; 2022: 2.8; 2023: 2.3.
  - Japan 2021: 1.6; 2022: 2.4; 2023: 1.2.
  - U.K. 2021: 7.4; 2022: 3.7; 2023: 2.8.
  - Canada 2021: 4.4; 2022: 3.9; 2023: 2.2.
  - Other Advanced Asia 2021: 4.6; 2022: 3.0; 2023: 2.9.
- Asia 2021: 6.5; 2022: 4.9; Revision Jan.2022 to Apr.2022: -0.5; 2023: 5.1.
- Asia EMDEs and AEs split with differing inflation and output-gap pressures.

### Omicron, supply chains, and trade
- Omicron slowed China’s manufacturing with implications for supply chains:
  - China exports (USD; FOB) year-on-year percent changes show slowdown through April 2022.
  - China PMI and PMI Suppliers’ Delivery Times indicate manufacturing/services composite trends through April 2022.
- Asian export growth supported by global PMI: Asia export volumes and Global PMI Manufacturing Index show expansion dynamics (Asia aggregate includes Australia, China, India, Indonesia, Japan, Korea, Malaysia, Philippines, Taiwan Province of China, Vietnam).

### Impacts of the Russia-Ukraine war on Asia and Pacific
- Financial and commodity effects (data as of May 13, 2022 unless noted):
  - 10-year yields: simple average of 10-year yields across regions (Asia EMDEs includes China, India, Indonesia, Malaysia, Philippines, Sri Lanka, Thailand, Vietnam; Asia AEs includes Australia, Hong Kong SAR, Japan, Korea, New Zealand, Singapore, Taiwan Province of China).
  - Commodity prices index (April 2021=100): wheat, metals, WTI Crude, rice show spikes through May 2022.
  - Exchange rate and Commodity Terms of Trade shock measured as projected change March–May 2022 compared to Dec 2021–February 2022 (terms of trade based on 45 commodities).
  - Example country terms-of-trade changes include negative impacts up to -14.0 percent for some jurisdictions on the supplied chart scale.
- Shipping costs:
  - World shipping costs shock: one standard deviation change = +22 percentage points; impulse response indicates headline inflation increases over subsequent years (solid line with 90 percent and 95 percent confidence bands; t=0 denotes year of shock).
- Commodity price shocks and administered prices:
  - Response to a one standard deviation shock to global oil prices (+10.3%) and global food prices (+3.0%) modeled for panel of 44 Asian economies monthly since 1992.
  - Administered energy/fuel prices in Asia reported as percent of countries in each group (Advanced Economies, Pacific Island Countries, Emerging Market Developing Economies, Low-Income Developing Countries).

### Terms-of-trade, growth, and current account effects
- Projected change in commodity terms of trade following RUS–UKR war: March–May 2022 vs Dec 2021–Feb 2022 (median aggregates shown).
- Asia: Impact of fall in commodity terms of trade on GDP (percent) shows negative effects for Asia EMDEs relative to Asia AEs (bars represent 1 standard deviation decrease at impact four quarters ahead; std dev intervals shown).
- Impact on current account balances:
  - Asia: Impact of fall in commodity terms of trade on current account balance measured in percent of GDP; LIDCs and PICs shown to be especially pressured.
  - Asia net imports by group (percent of GDP): cereals and oil and gas medians and interquartile ranges presented.

### External demand and tourism channels
- Lower external demand from Europe reduces growth, especially for Advanced Economies within Asia:
  - Value added exported to Russia and Europe reported as percent of GDP for multiple economies (SGP, HKG, THA, VNM, MYS, TWN, KOR, IND, PHL, CHN, NZL, JPN, IDN, AUS).
  - GDP growth spillovers: impact of 1 percentage point change in partner country growth decomposed into From within APD, From Europe, From Rest of World for AEs and EMDEs.
  - Tourism arrivals (Percent of total; 2019): countries showing shares from Europe, Russia, Ukraine.

### Market reactions since the invasion
- Change in equity prices (Percent; May 13 relative to February 23, 2022): multiple Asian markets down; specific percent changes shown on supplied chart.
- Change in EMBI spreads in Asia (Basis points; May 13 relative to February 23, 2022): widening sovereign spreads with LKA showing largest increase.

### Forecasts and regional outlook
- GDP growth forecasts (IMF WEO, April 2022):
  - World: 2021: 6.1; 2022: 3.6; 2023: 3.6.
  - Asia: 2021: 6.5; 2022: 4.9; 2023: 5.1.
  - AEs, EMDEs, Australia, China, Japan, Korea, India, ASEAN, PICs and Small States broken down with exact values in IMF WEO April 2022 tables.
- Revisions:
  - Revision Jan. 2022 to Apr. 2022 for World: -0.8; Asia: -0.5; China: -0.5; other country-specific revisions listed in table.

### Inflation and growth trade-offs
- Asia experiencing inflation surge even as growth weakens:
  - Growth revisions for 2022 relative to January WEO (percentage points; weighted average) show Asia and EMDEs facing downward revisions.
  - Inflation revisions for 2022 relative to January WEO (percentage points; weighted average; end-of-period inflation) show upward revisions across regions including Asia.
- China: multiple headwinds with increased policy support:
  - Daily new COVID-19 cases (7-day moving average) plotted through April 2022 (symptomatic and asymptomatic).
  - Change in cyclically-adjusted primary balance (percent of potential GDP) with values including -5.1, 3.4, -0.5, -7.0, -5.5, -4.0, -2.5, -1.0, 0.5, 2.0, 3.5, 5.0 across 2020–2022 estimate and projection periods.
  - Revisions to China GDP growth for 2022 decomposed into Others, Fiscal policy, Covid developments, RUS–UKR war, Total (percentage point bars ranging approximately -1.0 to +0.6 in supplied figure).

### Risks and spillovers
- Real rates may rise from faster-than-expected policy normalization:
  - US Treasury yield curve shown across maturities 1M to 10Y with WEO vintages October 2021, January 2022, and Latest as of April 25, 2022.
  - US Treasuries: 10-year real rates and breakeven inflation (data as of April 25, 2022).
  - Global and Asia 10-year real rates historical series and interquartile ranges presented.
- A rise in US real rates can have significant spillovers for Asia:
  - Impact of a 100 basis points positive US monetary policy shock on real investment (percent), 10-year real rates (percentage points), and investment differential for high-leverage vs low-leverage firms (percent) shown across horizons (quarters 0–10) with confidence intervals.
- Risk of a China slowdown:
  - Covid-19 new cases (7-day moving average) through April 25, 2022.
  - Property transactions and developer bond prices: real estate bond price index and 30-city real estate transactions (in 10,000 sq.m, 30-day moving average) illustrate strains through Mar–Apr 2022.

### Policy trade-offs and priorities
- Output gaps (percent of GDP) and core inflation vs output gaps highlight difficult trade-offs between supporting activity and containing inflation:
  - Output gaps for Asia AEs and Asia EMDEs from 2019 through 2023 shown with percent values on supplied chart.
  - Deviation in core inflation from pre-Covid level, end 2021 plotted against output gaps for regions.
- Monetary policy expectations:
  - Monetary policy is expected to tighten to keep inflation within target ranges (World Economic Outlook and Bloomberg data referenced in analysis).

### Short-term mitigation, fiscal stance, and public debt
- Expected inflation and short-term interest rate projections (data as of May 13th, 2022):
  - Latest inflation and consensus forecasts are for headline inflation. Some countries do not have explicit inflation targeting regimes and no target, while target ranges apply to core inflation in some countries.
  - WEO April 2022 projects changes in short-term rates for 2022 and 2023 relative to 2021; market implied policy rates from Bloomberg refer to 1-year and 2-year ahead rates and therefore cover a slightly different timeframe than WEO projections.
- Fiscal stance:
  - Planned fiscal adjustment is projected to stabilize debt at high levels (World Economic Outlook and IMF staff calculations; WEO April 2022 vs WEO October 2021 comparisons).
  - Fiscal impulse is calculated as the change in the structural primary balance.
  - Weighted-average debt ratios (Percent of fiscal year GDP) presented across 2016–2027 for Asia AEs, Asia EMDEs (Excl. China), Asia PICs, China.

### Social mitigation and vulnerabilities
- Short-term mitigation measures for vulnerable households:
  - Share in CPI basket (percent) for Food, Oil/Energy, Transport shown for Asia EMDEs and Asia AEs.
  - IMF desk survey of 16 Asian economies (IMF staff calculations; 2022): bars show share of economies that have introduced discretionary tax or spending measures in 2022 in response to rise in energy and food prices (categories: Tax Measures; Spending Measures; Both Measures).
- Output scarring and corporate debt vulnerabilities:
  - Medium-term GDP losses measured as difference in cumulative growth rates 2020-25, current projection relative to pre-COVID-19 forecast (WEO April 2022; updated as of March 31, 2022). Tourism-dependent countries: Cambodia, Fiji, Maldives, Thailand, and Vanuatu (defined as those with 10 percent or more of GDP from tourism).
  - Non-financial corporate debt (loans and debt securities) change 2020 vs. 2019 shown for Asia AEs, China, Asia EMs ex. China (percent of GDP; consistent sample of 12 Asian countries; weighted average within groups).
  - Firm-level evidence: decline in investment following recessions with difference-in-difference estimates comparing high-debt vs low-debt firms; declines up to -6 percentage points across quarters since start of recession.
- Debt restructuring and crisis readiness:
  - Share of NFC debt in vulnerable firms: Percent of total debt in NFCs with ICR less than 1 for listed economies with 2019 vs 2021 comparisons.
  - Crisis readiness index (Araujo and others (2022) and IMF staff calculations): out-of-court debt restructuring, hybrid restructuring, institutional framework, liquidation, reorganization — simple average across groups (Asia AEs, Asia EMDEs, Non-Asia AEs, Non-Asia EMs).
- Housing costs:
  - Real housing costs (Index, 2019Q4 = 100) reported for Australia, New Zealand, Korea, Singapore, Hong Kong SAR, Japan with index values spanning approximately 95–140 (Bank for International Settlements).

### Human capital and connectivity
- Human capital losses from school closures:
  - Average days of school closures plotted for EMs, LIDCs, APD WHD RoW (analysis excludes PICs).
  - School closures and COVID-19 deaths in EMDEs: scatter with Total Days of School Closures vs Total COVID-19 Deaths per 100,000 habitants.
- Internet connectivity: Individuals using internet (percent of population; simple average) shown across groups.

### Policy priorities and recommendations (IMF)
- Structural Policies:
  - Boosting long-term growth remains critical, given short-term challenges and expected scarring.
  - Priorities include trade reforms, modernizing corporate restructuring frameworks, investing in human capital, digitization, product and labor market reforms, and facilitating a green transition.
- Fiscal Policy:
  - Temporary, targeted measures to mitigate cost of living increases for vulnerable—avoid untargeted fuel subsidies where possible.
  - Start unwinding pandemic-era support; if space available speed of consolidation may be slowed to alleviate new headwinds.
  - Credible medium-term plans to rebuild buffers while supporting pressing priorities.
- Monetary Policy:
  - Monetary tightening in most countries to meet inflation targets and anchor expectations.
  - Speed of tightening dependent on inflation expectations, second round effects, external pressures.
  - Communicate clearly to ensure orderly market reaction.
- Overarching challenge:
  - Difficult trade-offs: Rising inflation, still incomplete recovery amid limited fiscal space and tightening global financial conditions. Heterogeneity across countries will require tailored policy responses.

### Country-specific highlights and risks
- Japan:
  - Growth in 2022 underpinned by fiscal support and pent-up demand; war in Ukraine and Omicron wave in Q1 slowed recovery.
  - Downward revision to 2022 growth decomposed into channels with contributions labeled -43%, -22%, -22%, -11% for Omicron wave and supply chain disruptions; Ukraine effect channels include higher commodity prices, weaker external demand, other channels.
  - Bank of Japan’s commitment to maintain easing until the 2 percent target is reached durably is assessed as appropriate; underlying inflation and inflation expectations remain below the 2% target.
- Korea:
  - Near-term monetary and long-term fiscal trade-offs highlighted; real GDP and Headline CPI through 2022Q4 and public debt projections to 2050 presented.
- India:
  - War in Ukraine has adverse macro impact, exacerbating policy trade-offs.
  - Inflation, expectations and policy rate: Core Inflation and Repo Rate series; change in one-year ahead inflation expectations relative to March 2020 shown with annotated values such as 8.2% and 9% in chart context.
- ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore, Thailand):
  - War in Ukraine increased uncertainty about the pace of recovery while exacerbating inflationary pressures.
  - Inflation projections for 2021–2023 show WEO April 2022 vs WEO January 2022 vs WEO October 2022 (axis spanning 2.5–6.0 percent).
- Frontier countries and LICs:
  - Higher food and fuel prices add to inflation and external pressures with adverse distributional effects.
  - Net imports of oil and gas (Percent of GDP, 2019) and CPI weights for food (Percent, 2022) plotted; horizontal line represents average weight of the ten countries.
- Pacific Island Countries (PICs):
  - High import dependency translating to balance of payments and inflation impact.
  - Inflation projections (In percentage points) and changes in current account balance, 2022 (In percent of GDP) shown for listed PICs (FJI, KIR, MHL, FSM, NRU, PLW, PNG, WSM, SLB, TON, TUV, VUT).

### Risks overview
- Risks tilted towards the downside with likelihood and time horizon assessments:
  - High likelihood:
    - Extended global supply chain disruptions (External; ST, MT; Expected Impact ↓).
    - Outbreaks of lethal and highly contagious Covid-19 variants (External, Domestic; ST; ↓).
    - Geopolitical tensions and de-globalization (External; ST, MT; ↓).
    - Rising and volatile energy and food prices (External; ST, MT; ↓).
  - Medium likelihood:
    - De-anchoring of inflation expectations in the US leads to rising core yields and risk premia (External; MT; Ambiguous).
    - Higher frequency and severity of climate-related natural disasters (External; MT; ↓).
    - Abrupt growth slowdown in China (External; ST, MT; ↓).
    - Disorderly transformations due to labor market rigidities and untargeted support (Domestic; MT; ↓).

*Source: IMF, Asia and Pacific Department — Regional Economic Outlook presentation “A YEAR OF DIFFICULT TRADE-OFFS” by S. Jay Peiris and Ranil Salgado, Tokyo, May 20, 2022; IMF World Economic Outlook, IMF staff calculations, UNESCO, Johns Hopkins University, Bank for International Settlements, and IMF Asia and Pacific Department analyses.*

### Section 1

### A YEAR OF DIFFICULT TRADE-OFFS

### Recent developments
- Presentation by S. Jay Peiris and Ranil Salgado, Tokyo, Japan, May 20, 2022 (IMF, Asia and Pacific Department - Regional Economic Outlook).
- The Ukraine war described as an “economic earthquake”.
- Omicron wave: Asia hit but with limited impact on mobility amid high vaccination rates (data as of April 25, 2022).
  - Mobility measured as percent deviation from baseline (Jan 3–Feb 6, 2020), 7-day moving average; median within Asia.

### Global inflation, monetary tightening, and financial conditions
- Headline inflation outturns and forecasts informed tightening in US and Euro Area.
- Federal Funds Rate: market expectations shown as of May 9, 2022 (Federal Funds futures).
- Euro Area monetary policy rates: comparisons for February 2022, March 2022, April 2022 based on Implied Overnight Index Swaps.
- FOMC median dots and market expectations:
  - FOMC median dots (Mar. 2022) vs (Dec. 2021) and current market expectations compared to neutral [nominal] rate estimate.

### Growth projections and revisions (IMF World Economic Outlook, April 2022)
- World and Advanced Economies growth:
  - World 2021: 6.1; Revision from Jan. 2022: 0.2; 2022: 3.6; Revision from Jan. 2022: -0.8; 2023: 3.6; Revision from Jan. 2022: -0.2.
  - Advanced Economies 2021: 5.2; 2022: 3.3; 2023: 2.4.
  - U.S. 2021: 5.7; 2022: 3.7; 2023: 2.3.
  - Euro Area 2021: 5.3; 2022: 2.8; 2023: 2.3.
  - Japan 2021: 1.6; 2022: 2.4; 2023: 1.2.
  - U.K. 2021: 7.4; 2022: 3.7; 2023: 2.8.
  - Canada 2021: 4.4; 2022: 3.9; 2023: 2.2.
  - Other Advanced Asia 2021: 4.6; 2022: 3.0; 2023: 2.9.
- Asia 2021: 6.5; 2022: 4.9; Revision Jan.2022 to Apr.2022: -0.5; 2023: 5.1.
- Asia EMDEs and AEs split with differing inflation and output-gap pressures.

### Omicron, supply chains, and trade
- Omicron slowed China’s manufacturing with implications for supply chains:
  - China exports (USD; FOB) year-on-year percent changes show slowdown through April 2022.
  - China PMI and PMI Suppliers’ Delivery Times indicate manufacturing/services composite trends through April 2022.
- Asian export growth supported by global PMI: Asia export volumes and Global PMI Manufacturing Index show expansion dynamics (Asia aggregate includes Australia, China, India, Indonesia, Japan, Korea, Malaysia, Philippines, Taiwan Province of China, Vietnam).

### Impacts of the Russia-Ukraine war on Asia and Pacific
- Financial and commodity effects (data as of May 13, 2022 unless noted):
  - 10-year yields: simple average of 10-year yields across regions (Asia EMDEs includes China, India, Indonesia, Malaysia, Philippines, Sri Lanka, Thailand, Vietnam; Asia AEs includes Australia, Hong Kong SAR, Japan, Korea, New Zealand, Singapore, Taiwan Province of China).
  - Commodity prices index (April 2021=100): wheat, metals, WTI Crude, rice show spikes through May 2022.
  - Exchange rate and Commodity Terms of Trade shock measured as projected change March–May 2022 compared to Dec 2021–February 2022 (terms of trade based on 45 commodities).
  - Example country terms-of-trade changes include negative impacts up to -14.0 percent for some jurisdictions on the supplied chart scale.
- Shipping costs:
  - World shipping costs shock: one standard deviation change = +22 percentage points; impulse response indicates headline inflation increases over subsequent years (solid line with 90 percent and 95 percent confidence bands; t=0 denotes year of shock).
- Commodity price shocks and administered prices:
  - Response to a one standard deviation shock to global oil prices (+10.3%) and global food prices (+3.0%) modeled for panel of 44 Asian economies monthly since 1992.
  - Administered energy/fuel prices in Asia reported as percent of countries in each group (Advanced Economies, Pacific Island Countries, Emerging Market Developing Economies, Low-Income Developing Countries).

### Terms-of-trade, growth, and current account effects
- Projected change in commodity terms of trade following RUS–UKR war: March–May 2022 vs Dec 2021–Feb 2022 (median aggregates shown).
- Asia: Impact of fall in commodity terms of trade on GDP (percent) shows negative effects for Asia EMDEs relative to Asia AEs (bars represent 1 standard deviation decrease at impact four quarters ahead; std dev intervals shown).
- Impact on current account balances:
  - Asia: Impact of fall in commodity terms of trade on current account balance measured in percent of GDP; LIDCs and PICs shown to be especially pressured.
  - Asia net imports by group (percent of GDP): cereals and oil and gas medians and interquartile ranges presented.

### External demand and tourism channels
- Lower external demand from Europe reduces growth, especially for Advanced Economies within Asia:
  - Value added exported to Russia and Europe reported as percent of GDP for multiple economies (SGP, HKG, THA, VNM, MYS, TWN, KOR, IND, PHL, CHN, NZL, JPN, IDN, AUS).
  - GDP growth spillovers: impact of 1 percentage point change in partner country growth decomposed into From within APD, From Europe, From Rest of World for AEs and EMDEs.
  - Tourism arrivals (Percent of total; 2019): countries showing shares from Europe, Russia, Ukraine.

### Market reactions since the invasion
- Change in equity prices (Percent; May 13 relative to February 23, 2022): multiple Asian markets down; specific percent changes shown on supplied chart.
- Change in EMBI spreads in Asia (Basis points; May 13 relative to February 23, 2022): widening sovereign spreads with LKA showing largest increase.

### Forecasts and regional outlook
- GDP growth forecasts (IMF WEO, April 2022):
  - World: 2021: 6.1; 2022: 3.6; 2023: 3.6.
  - Asia: 2021: 6.5; 2022: 4.9; 2023: 5.1.
  - AEs, EMDEs, Australia, China, Japan, Korea, India, ASEAN, PICs and Small States broken down with exact values in IMF WEO April 2022 tables.
- Revisions:
  - Revision Jan. 2022 to Apr. 2022 for World: -0.8; Asia: -0.5; China: -0.5; other country-specific revisions listed in table.

### Inflation and growth trade-offs
- Asia experiencing inflation surge even as growth weakens:
  - Growth revisions for 2022 relative to January WEO (percentage points; weighted average) show Asia and EMDEs facing downward revisions.
  - Inflation revisions for 2022 relative to January WEO (percentage points; weighted average; end-of-period inflation) show upward revisions across regions including Asia.
- China: multiple headwinds with increased policy support:
  - Daily new COVID-19 cases (7-day moving average) plotted through April 2022 (symptomatic and asymptomatic).
  - Change in cyclically-adjusted primary balance (percent of potential GDP) with values including -5.1, 3.4, -0.5, -7.0, -5.5, -4.0, -2.5, -1.0, 0.5, 2.0, 3.5, 5.0 across 2020–2022 estimate and projection periods.
  - Revisions to China GDP growth for 2022 decomposed into Others, Fiscal policy, Covid developments, RUS–UKR war, Total (percentage point bars ranging approximately -1.0 to +0.6 in supplied figure).

### Risks and spillovers
- Real rates may rise from faster-than-expected policy normalization:
  - US Treasury yield curve shown across maturities 1M to 10Y with WEO vintages October 2021, January 2022, and Latest as of April 25, 2022.
  - US Treasuries: 10-year real rates and breakeven inflation (data as of April 25, 2022).
  - Global and Asia 10-year real rates historical series and interquartile ranges presented.
- A rise in US real rates can have significant spillovers for Asia:
  - Impact of a 100 basis points positive US monetary policy shock on real investment (percent), 10-year real rates (percentage points), and investment differential for high-leverage vs low-leverage firms (percent) shown across horizons (quarters 0–10) with confidence intervals.
- Risk of a China slowdown:
  - Covid-19 new cases (7-day moving average) through April 25, 2022.
  - Property transactions and developer bond prices: real estate bond price index and 30-city real estate transactions (in 10,000 sq.m, 30-day moving average) illustrate strains through Mar–Apr 2022.

### Policy trade-offs and priorities
- Output gaps (percent of GDP) and core inflation vs output gaps highlight difficult trade-offs between supporting activity and containing inflation:
  - Output gaps for Asia AEs and Asia EMDEs from 2019 through 2023 shown with percent values on supplied chart.
  - Deviation in core inflation from pre-Covid level, end 2021 plotted against output gaps for regions.
- Monetary policy expectations:
  - Monetary policy is expected to tighten to keep inflation within target ranges (World Economic Outlook and Bloomberg data referenced in analysis).

*Source: IMF, Asia and Pacific Department — Regional Economic Outlook presentation “A YEAR OF DIFFICULT TRADE-OFFS” by S. Jay Peiris and Ranil Salgado, Tokyo, May 20, 2022.*

### Section 2

### Section 2 — Regional Economic Outlook (Asia and Pacific Department)

### Expected inflation and short-term interest rate projections
- Data as of May 13th, 2022; latest inflation and consensus forecasts are for headline inflation. Some countries do not have explicit inflation targeting regimes and no target, while target ranges apply to core inflation in some countries.
- WEO April 2022 projects changes in short-term rates for 2022 and 2023 relative to 2021; market implied policy rates from Bloomberg refer to 1-year and 2-year ahead rates and therefore cover a slightly different timeframe than WEO projections.
- Charts compare:
  - Inflation targeting ranges, inflation targets, latest headline data, and Consensus Forecast: Two Years Ahead for listed economies (IND NZL SGP AUS PHL KOR IDN THA VNM MYS CHN HKG JPN).
  - Market implied policy rate 1-year ahead and 2-years ahead for a subset (NZL HKG USA AUS IDN KOR PHL SGP THA JPN IND*).

### Fiscal stance and public debt outlook
- Planned fiscal adjustment is projected to stabilize debt at high levels (World Economic Outlook and IMF staff calculations; WEO April 2022 vs WEO October 2021 comparisons).
- Fiscal impulse is calculated as the change in the structural primary balance.
- Charts report weighted-average debt ratios (Percent of fiscal year GDP) with axes spanning:
  - Fiscal impulse: -4 to 3 (Percent of potential GDP, weighted average).
  - Debt ratios: 40, 60, 80, 100, 120, 140, 160 (Percent of fiscal year GDP; weighted average) across 2016–2027 for Asia AEs, Asia EMDEs (Excl. China), Asia PICs, China.

### Short-term mitigation measures for vulnerable households
- Share in CPI basket (percent) for Food, Oil/Energy, Transport shown for Asia EMDEs and Asia AEs.
- Based on an IMF desk survey of 16 Asian economies (IMF staff calculations; 2022):
  - Bars show the share of economies in the group that have introduced discretionary tax or spending measures in 2022 in response to the rise in energy and food prices.
  - Response categories and shares: Tax Measures; Spending Measures; Both Measures — for Asia AEs and Asia EMDEs (percent of economies within groups, up to 70 percent on axis).

### Output scarring and corporate debt vulnerabilities
- Medium-term GDP losses measured as difference in cumulative growth rates 2020-25, current projection relative to pre-COVID-19 forecast (WEO April 2022; updated as of March 31, 2022). Tourism-dependent countries defined as those with 10 percent or more of GDP from tourism: Cambodia, Fiji, Maldives, Thailand, and Vanuatu.
- Non-financial corporate debt (loans and debt securities) change 2020 vs. 2019 shown for:
  - Asia AEs, China, Asia EMs ex. China (percent of GDP; consistent sample of 12 Asian countries; weighted average within groups).
- Firm-level evidence (Capital IQ and Estefania-Flores and others, forthcoming):
  - Decline in investment following recessions: difference-in-difference estimates comparing high-debt vs low-debt firms across quarters since start of recession (quarters since start of recession axis: 0,4,8,12; decline up to -6 percentage points).
- Change 2020-19 (LHS) and 2020 level (RHS) plotted with scales 0–160 (LHS) and 0–12 (RHS) for debt statistics.

### Debt restructuring, crisis readiness, and housing costs
- Share of NFC debt in vulnerable firms presented as Percent of total debt in NFCs with ICR less than 1 for listed economies (AUS CHN HKG IDN IND JPN KOR MLY NZL PHL SGP THL VTN) with a 2019 vs 2021 comparison and bubble widths representing share of NFCs with ICR < 1.
- Crisis readiness index (Araujo and others (2022) and IMF staff calculations): out-of-court debt restructuring, hybrid restructuring, institutional framework, liquidation, reorganization — simple average across groups (Asia AEs, Asia EMDEs, Non-Asia AEs, Non-Asia EMs); the closer to the center, the lower the value of the sub-indicator, showing lesser preparedness.
- Real housing costs (Index, 2019Q4 = 100) reported for Australia, New Zealand, Korea, Singapore, Hong Kong SAR, Japan with index values spanning approximately 95–140 (Bank for International Settlements).

### Human capital losses from school closures
- School closures due to COVID-19:
  - Average days of school closures plotted for EMs, LIDCs, APD WHD RoW (analysis excludes PICs).
  - School closures and COVID-19 deaths in EMDEs: scatter with Total Days of School Closures vs Total COVID-19 Deaths per 100,000 habitants.
- Internet connectivity: Individuals using internet (percent of population; simple average) shown across groups.

### Policy priorities and recommendations (IMF)
Structural Policies
- Boosting long-term growth remains critical, given short-term challenges and expected scarring.
- Priorities include trade reforms, modernizing corporate restructuring frameworks, investing in human capital, digitization, product and labor market reforms, and facilitating a green transition.

Fiscal Policy
- Temporary, targeted measures to mitigate cost of living increases for vulnerable—avoid untargeted fuel subsidies where possible.
- Start unwinding pandemic-era support; if space available speed of consolidation may be slowed to alleviate new headwinds.
- Credible medium-term plans to rebuild buffers while supporting pressing priorities.

Monetary Policy
- Monetary tightening in most countries to meet inflation targets and anchor expectations.
- Speed of tightening dependent on inflation expectations, second round effects, external pressures.
- Communicate clearly to ensure orderly market reaction.

- Difficult trade-offs: Rising inflation, still incomplete recovery amid limited fiscal space and tightening global financial conditions. Heterogeneity across countries will require tailored policy responses.

### Country-specific highlights and risks
Japan
- Growth in 2022 is underpinned by fiscal support and pent-up demand but the war in Ukraine and the omicron wave in Q1 has slowed the recovery.
- Real GDP contributions by sector plotted for 2019–2023 (Private consumption, Private investment, Government, Net Exports).
- Downward revision to 2022 growth decomposed into channels with noted contributions: -43%, -22%, -22%, -11% labeled for Omicron wave and supply chain disruptions; Ukraine effect channels (higher commodity prices, weaker external demand, other channels).
- Headline inflation accelerating while underlying core inflation remains subdued; recent yen depreciation adds upward pressure.
- Inflation expectations: Inflation-Swaps 5Y and 10Y and Break-even rate 10Y JGBs plotted (Jan-14 to Mar-22).
- Monetary policy view: The Bank of Japan’s commitment to maintain easing until the 2 percent target is reached durably is assessed as appropriate; underlying inflation and inflation expectations remain below the 2% target. Further measures could be considered to make easing more sustainable.
- Long-run fiscal concerns: Gross public debt and primary balance dynamics plotted to 2060; financing of Health Care and Long-Term Care shown with time series 1995–2060 and components (Government contributions, Premium contributions, Copayment, Total spending).

Korea
- Near-term monetary and long-term fiscal trade-offs highlighted.
- Real GDP and Headline CPI growth series to 2022Q4 and public debt projection in Trillion Won plotted; National Debt Level (LHS) and Debt to GDP Ratio (RHS) shown for projections to 2050.

India
- War in Ukraine has adverse macro impact, exacerbating policy trade-offs.
- Contributions to real GDP growth plotted (Private Consumption, Public Consumption, Gross Fixed Capital Formation, Change in Stocks, Net Exports, Statistical Discrepancy) with WEO real GDP growth series from January 2022 vs April 2022 WEO.
- Inflation, expectations and policy rate: Core Inflation and Repo Rate series; change in one-year ahead inflation expectations relative to March 2020 shown (Jan-20 to Jan-22) with values such as 8.2% and 9% annotated in chart context.

ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore, Thailand)
- War in Ukraine increased uncertainty about the pace of recovery while exacerbating inflationary pressures.
- Real GDP growth 2018–2022 projections plotted by country.
- Inflation projections for 2021–2023 show WEO April 2022 vs WEO January 2022 vs WEO October 2022 (axis spanning 2.5–6.0 percent).

Frontier countries and LICs
- Higher food and fuel prices add to inflation and external pressures with adverse distributional effects.
- Net imports of oil and gas (Percent of GDP, 2019) and CPI weights for food (Percent, 2022) plotted; horizontal line represents average weight of the ten countries.
- IMF Country Desk Survey and IMF staff estimates indicate impacts on fiscal and external positions.

Pacific Island Countries (PICs)
- High import dependency translating to balance of payments and inflation impact.
- Inflation projections (In percentage points) and changes in current account balance, 2022 (In percent of GDP) shown for listed PICs (FJI, KIR, MHL, FSM, NRU, PLW, PNG, WSM, SLB, TON, TUV, VUT).
- Change in Current Account Balance chart highlights country-specific shifts with a PIC median line.

### Risks overview
- Risks tilted towards the downside with likelihood and time horizon assessments:
  - High likelihood: Extended global supply chain disruptions (External; ST, MT; Expected Impact ↓), Outbreaks of lethal and highly contagious Covid-19 variants (External, Domestic; ST; ↓), Geopolitical tensions and de-globalization (External; ST, MT; ↓), Rising and volatile energy and food prices (External; ST, MT; ↓).
  - Medium likelihood: De-anchoring of inflation expectations in the US leads to rising core yields and risk premia (External; MT; Ambiguous), Higher frequency and severity of climate-related natural disasters (External; MT; ↓), Abrupt growth slowdown in China (External; ST, MT; ↓), Disorderly transformations due to labor market rigidities and untargeted support (Domestic; MT; ↓).

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_Source: https://www.imf.org/-/media/files/oap/oap-home/2022/presentation-for-imf-reo-seminar.pdf_