## International Monetary Fund — Regional Economic Outlook: Asia and Pacific (April 2024)

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### Key findings, projections, and recent developments
- Regional growth outturns and revisions:
  - "The region grew by 5.0 percent last year, 0.4 percentage point stronger than forecast in October."
  - "Growth in Asia and the Pacific is projected to slow modestly to 4.5 percent—an upward revision of 0.3 percentage point from last October."
  - "Growth in 2025 is projected to moderate further to 4.3 percent, with the structural slowdown in China a key factor."
  - "The region is expected to remain the world’s most dynamic, contributing about 60 percent of global growth."
- China-specific outcomes:
  - "In China, 2023 growth, at 5.2 percent, was 0.2 percentage point higher than forecast in the October 2023 Regional Economic Outlook: Asia and Pacific."
  - Post-reopening momentum was not sustained; the property sector correction deepened, with housing starts and sales continuing to decline.
  - A fiscal stimulus package announced in October 2023 supported activity and will carry over into 2024.
- Drivers and composition of growth:
  - Emerging markets accounted for most positive surprises, driven primarily by robust domestic demand.
  - In emerging markets, growth was supported primarily by strong private demand; in China and India, public investment made an important contribution.
  - Weak export demand depressed exports for most of 2023; an exception was technology products from advanced Asia benefiting from a surge in demand for high-end semiconductors related to artificial intelligence applications in Q4 2023.
  - Service sector activity was generally stronger than industrial activity in emerging markets; in advanced economies, services slowed while industrial production began to pick up in Q4 2023.
- Inflation and disinflation dynamics:
  - "Headline inflation in the region fell sharply, especially in emerging Asia."
  - Regional inflation peaked at around half the levels seen elsewhere post-COVID-19, reflecting timely monetary tightening in 2022 and early 2023 and temporary price controls and subsidies.
  - Disinflation drivers: retreating commodity prices, lower global manufactured goods price inflation, supply capacity coming back onstream following the COVID-19 pandemic.
  - Services inflation displayed stickiness in advanced economies and contributed to persistent price pressures; goods prices disinflated across the region.
- Early 2024 developments:
  - Export growth picked up, benefiting from stronger import demand from the United States.
  - Industrial production ticked up in emerging markets; services sectors returned to positive growth in advanced economies.
  - In China, equity markets picked up slightly in February 2024 after market interventions; PMI readings improved in March 2024, but housing indicators remained subdued.

### Growth projections and country highlights
- Regional outlook:
  - 2024: growth in Asia and the Pacific is projected to slow slightly to 4.5 percent—an upward revision of 0.3 percentage point relative to the October 2023 Regional Economic Outlook: Asia and Pacific.
  - 2025: growth in the region is projected at 4.3 percent—unchanged from October.
- China:
  - Growth projected: 5.2 percent in 2023 to 4.6 percent in 2024 and 4.1 percent in 2025.
  - Upward revision of 0.4 percentage point in 2024 reflects stimulus measures announced in October, with public spending forecast to be a significant contributor.
- Advanced Asia:
  - Regional projection: 1.6 percent in 2024 (from 1.7 percent in 2023); 1.8 percent in 2025.
  - Japan: 1.9 to 0.9 percent in 2024; robust wage settlements expected to support recovery in consumption.
  - Australia: 2.1 to 1.5 percent in 2024.
  - New Zealand: about 1.0 percent in 2024.
  - Korea: 1.4 to 2.3 percent.
  - Singapore: 1.1 to 2.1 percent.
- Emerging Asia (selected):
  - India: 2024 projection revised upward by 0.5 percentage point to 6.8 percent.
  - Philippines: 2024 projection revised upward by 0.3 percentage point to 6.2 percent.
  - Indonesia: 5.0 percent in 2024 and 5.1 percent in 2025.
  - Malaysia: around 4.4 percent.
  - Thailand: 2.7 percent in 2024.
  - Bangladesh: growth projected to slow to 5.7 percent in 2024 (from 6 percent in 2023).
  - Mongolia: 2024 growth revised up to 6.5 percent (from 4.5 percent forecast in October).
  - Pacific island countries: growth forecast to strengthen to 4.0 percent in 2024 (from 3.3 percent in 2023), supported by a rebound in tourism.

### Inflation outlook and monetary policy stance
- Inflation path:
  - Inflation is projected to converge to central bank targets by the end of 2024 in most of the region, conditional on macroeconomic policies staying the course.
- Regional guidance:
  - Economies with inflation materially above targets and positive output gaps at end-2023 (including Australia and New Zealand): disinflation expected to be supported by tight monetary and fiscal policies and declining commodity prices.
  - China and Thailand (inflation low and output gaps negative at end-2023): an accommodative policy stance would boost demand, help close output gaps, and push inflation back into positive territory.
  - Emerging markets where inflation is at or close to target: core inflation largely expected to remain contained; headline inflation may fall further due to lower energy prices in some economies, while food-price pressures (for example, rice in India) may slow headline disinflation in others.
  - Japan: inflation expected to stabilize about 2 percent in the coming years amid solid wage growth, partly offsetting the phase-out of energy subsidies.
- Monetary policy priorities:
  - "Central banks should ensure that inflation returns smoothly to target, both in countries experiencing persistent price pressures and in countries facing deflationary risks."
  - Policymakers should "continue to focus firmly on domestic price stability and avoid making policy decisions overly dependent on anticipated interest rate moves by the Federal Reserve."
  - In economies where core inflation remains above target: policies may need to stay tighter for longer to achieve higher real policy rates.
  - In economies where inflation is at or close to target, near-term inflation expectations are stable, and real interest rates are elevated: room may emerge in the course of 2024 to shift to a more neutral stance.
  - In economies where inflation is low: maintaining or moving to a less restrictive stance is called for to avoid deflationary expectations taking hold.

### Financial conditions and supervision
- Financial conditions:
  - Financial conditions in Asia and the Pacific eased in the second half of 2023: expectations of monetary easing in both Asia and the United States supported a sizable reduction in borrowing costs.
  - Increased global appetite for emerging market assets reduced sovereign spreads, especially in frontier markets.
  - Bank lending rates have been slow to follow and have remained close to the levels reached during the peak of monetary tightening in the first half of 2023.
  - Banks increased the intermediation spread between lending and deposit rates, bolstering bank profitability.
  - Policy rates in Asia have been unusually low relative to the United States, reflecting Asia’s more benign inflation outcomes; this has driven sharp exchange rate movements vis-à-vis the US dollar.
- Financial supervision recommendations:
  - "Supervisors should continue to vigilantly monitor the buildup of risks."
  - Financial supervisors should closely monitor the buildup of financial vulnerabilities and be ready to act if loan delinquencies increase.
  - Debt-at-risk metrics remain above prepandemic levels for the real estate sector, where earnings have failed to keep up with interest costs.
  - The full effect of post-COVID-19 monetary tightening has not yet passed through to most countries’ corporate sectors.

### Risks, scenarios, and spillovers
- Near-term risk balance:
  - "Near-term risks are now broadly balanced."
  - Retreating inflation and the prospect of earlier monetary easing have increased the likelihood of a soft landing.
- Downside risks:
  - Increased geoeconomic fragmentation and geopolitical tensions.
  - In China, a deeper-than-anticipated property sector correction is a downside risk; a deeper slump in real estate investment could diminish consumer confidence, intensify disinflationary pressures, and further compromise local government balance sheets.
  - Entrenched weakness could lead to broader deflationary pressures, weigh on domestic demand, and revalue debt levels.
  - Trade disruptions: attacks on cargo ships in the Red Sea have provoked rerouting of trade between Asia and Europe around the Cape of Good Hope, driving up shipping costs and increasing transport times.
  - Geopolitical escalation (Gaza–Israel, expanded Russia–Ukraine conflict) could trigger commodity price spikes.
  - Sticky inflation in advanced economies (e.g., slower-than-expected disinflation in the United States) could postpone policy rate cuts, increasing borrowing costs in Asia and pressuring equity valuations.
  - Inflation undershooting in economies already below targets could lead to prolonged low inflation or deflation, elevating real interest rates and weighing on growth.
- Upside risks:
  - Stronger-than-expected growth in Europe and the United States benefiting Asia’s exporters.
  - Greater-than-expected fiscal and monetary policy support in China could boost growth in China and neighboring countries.
- Geoeconomic fragmentation and AI:
  - Restrictions on trade and cross-border movements of capital and technology pose risks to highly integrated Asian economies; accelerated fragmentation would reduce foreign direct investment and portfolio flows and slow innovation and technology adoption.
  - AI likely to bring both growth opportunities and economic and social challenges; IMF research suggests Asia’s emerging markets may be somewhat better prepared than peers in other regions, but with significant heterogeneity.

### Policy recommendations and priorities
- Monetary policy:
  - Central banks should ensure inflation returns smoothly to target and focus firmly on domestic price stability.
  - Avoid making policy decisions overly dependent on anticipated Federal Reserve moves.
- Fiscal policy:
  - "Higher debt levels and interest costs weigh on public balance sheets—a renewed effort to advance fiscal consolidation is thus in order."
  - Reforms to target revenue mobilization and expenditure rationalization, including reductions in costly fuel subsidies, are critical to reduce debt levels, contain debt service costs, and free up budgetary space for development needs, social safety nets, and climate adaptation.
  - IMF staff projections: the adjustment implied for the next three years would suffice to stabilize debt-to-GDP ratios in most economies—except in countries where cyclical considerations may suggest a more accommodative near-term stance.
- Financial sector supervision:
  - Continue vigilant monitoring of corporate and household balance sheets as tighter monetary policies pass through.
  - Supervisors should continue to monitor commercial real estate and highly leveraged sectors.

### Selected thematic boxes and findings
- Box 1. Transmission of Renminbi Shocks to Other Asian Economies:
  - Large renminbi (CNY) depreciations trigger substantial but short-lived depreciation pressure on other Asian currencies; estimates indicate about 50 percent exchange rate pass-through in the short term on average, fading after about six months.
  - Renminbi depreciations can worsen terms of trade of Asian exporters and reduce demand for their currencies; Korea, Malaysia, and Vietnam—having similar export structures to China—experience disproportionately greater currency pressure after CNY depreciations.
  - JPY depreciations are followed by more permanent currency depreciations but do not generate significant negative spillovers to other countries’ exports.
- Box 2. The Impact of Monetary Tightening on Corporate Interest Costs:
  - Net effective interest rates (net interest costs as a share of the stock of debt) have increased by substantially less than policy rates to date.
  - Corporate savings and higher corporate interest earnings have muted pass-through; empirical local projections show net effective interest rates turn positive only after around two years following a 100 basis point contractionary monetary policy shock.
  - Policy implication: the squeeze on corporate balance sheets is expected to phase in over the coming months; supervisors should monitor highly leveraged sectors.
- Box 3. Industrial Policies in Asia:
  - The last decade saw a sharp rise in industrial policy (IP) measures since 2017; Asia-Pacific has been highly active in deploying IP measures, often via subsidies and traditional trade tools.
  - Sound IP design principles: target well-identified market failures; be time-bound and cost-effective; anchored by cost-benefit analysis and strong governance; complement with horizontal structural reforms; respect international obligations including World Trade Organization rules.

### Data vintage, acknowledgments, and conventions
- Data vintage:
  - "The report is based on data available as of April 2, 2024, and includes comments from other IMF departments."
  - Specific figure data notes reference dates such as April 15, 2024 and April 2, 2024; Figure 13 latest through February 2024.
- Acknowledgments:
  - Report prepared by a team led by Johannes Wiegand, under the overall direction of Krishna Srinivasan and Thomas Helbling. Main authors: Tristan Hennig and Monica Petrescu (lead). Contributions by Julia Estefania Flores, Rahul Giri, Daniel Jimenez, Chris Redl, Vyshnavi Thumbala Saikrishnan, and Yizhi Xu. Lily Alvarado and Judee Yanzon assisted with preparation. Edited and coordinated by Cheryl Toksoz of the IMF’s Communications Department.
- Conventions and definitions:
  - "ASEAN" refers to Brunei Darussalam, Cambodia, Indonesia, Lao P.D.R., Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
  - "ASEAN-5" refers to Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
  - "Advanced Asia" refers to Australia, Hong Kong SAR, Japan, Korea, New Zealand, Singapore, and Taiwan Province of China.
  - "Emerging Asia" refers to China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
  - "Basis points" refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
  - "Billion" means a thousand million; "trillion" means a thousand billion.
  - The term "country" may cover some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

### Table excerpt: Asia — Real GDP (selected entries, year-over-year change; percent)
- "Asia7. 03.95.04.54.30.40.30.0"
- "Advanced Economies4.31.81.71.61.80.0– 0 .10.2"
- "Australia5.63.82.11.52.00.30.30.0"
- "New Zealand5.62.40.61.02.0–0.50.0– 0 .1"
- "Japan      2.61.01.90.91.0– 0 .1– 0 .10.4"
- "China      8.43.05.24.64 .10.20.40.0"
- "India3 9.77. 07. 86.86.51.50.50.2"
- "Indonesia      3.75.35.05.05 .10.00.00 .1"
- "ASEAN 6 3.45.54.24.64.80.00.00.0"
- "ASEAN–5 7 4 .15.54 .14.54.6– 0 .10.00 .1"

*International Monetary Fund — Regional Economic Outlook: Asia and Pacific (April 2024).*

### references.

### references.

### Publication and identifiers
- ISBN: 9798400272349  (paper)
- ISBN: 9798400272769  (ePub)
- ISBN: 9798400272813  (Web PDF)
- Classification: LCC HC412.R44 2024
- Publication frequency: The Regional Economic Outlook: Asia and Pacific is published twice a year, in the spring and fall.
- Publication orders contact information:
  - International Monetary Fund, Publication Services, P.O. Box 92780, Washington, DC 20090 (USA)
  - T. +(1) 202.623.7430
  - F. +(1) 202.623.7201
  - publications@IMF.org
  - www.IMFbookstore.org
  - www.elibrary.IMF.org

### Key findings, projections, and recent developments
- Regional growth outturns and revisions:
  - "The region grew by 5.0 percent last year, 0.4 percentage point stronger than forecast in October."
  - "Growth in Asia and the Pacific is projected to slow modestly to 4.5 percent—an upward revision of 0.3 percentage point from last October."
  - "Growth in 2025 is projected to moderate further to 4.3 percent, with the structural slowdown in China a key factor."
  - "The region is expected to remain the world’s most dynamic, contributing about 60 percent of global growth."
- China-specific outcomes:
  - "In China, 2023 growth, at 5.2 percent, was 0.2 percentage point higher than forecast in the October 2023 Regional Economic Outlook: Asia and Pacific."
  - Post-reopening momentum was not sustained; the property sector correction deepened, with housing starts and sales continuing to decline.
  - A fiscal stimulus package announced in October 2023 supported activity and will carry over into 2024.
- Drivers and composition of growth:
  - Emerging markets accounted for most positive surprises, driven primarily by robust domestic demand.
  - In emerging markets, growth was supported primarily by strong private demand; in China and India, public investment made an important contribution.
  - Weak export demand depressed exports for most of 2023; an exception was technology products from advanced Asia benefiting from a surge in demand for high-end semiconductors related to artificial intelligence applications in Q4 2023.
  - Service sector activity was generally stronger than industrial activity in emerging markets; in advanced economies, services slowed while industrial production began to pick up in Q4 2023.
- Inflation and disinflation dynamics:
  - "Headline inflation in the region fell sharply, especially in emerging Asia."
  - Regional inflation peaked at around half the levels seen elsewhere post-COVID-19, reflecting timely monetary tightening in 2022 and early 2023 and temporary price controls and subsidies.
  - Disinflation drivers: retreating commodity prices, lower global manufactured goods price inflation, supply capacity coming back onstream following the COVID-19 pandemic.
  - Services inflation displayed stickiness in advanced economies and contributed to persistent price pressures; goods prices disinflated across the region.
- Early 2024 developments:
  - Export growth picked up, benefiting from stronger import demand from the United States.
  - Industrial production ticked up in emerging markets; services sectors returned to positive growth in advanced economies.
  - In China, equity markets picked up slightly in February 2024 after market interventions; PMI readings improved in March 2024, but housing indicators remained subdued.

### Risks and scenarios
- Near-term risk balance:
  - "Near-term risks are now broadly balanced."
  - Retreating inflation and the prospect of earlier monetary easing have increased the likelihood of a soft landing.
  - Upside risk: stronger-than-expected growth in Europe and the United States benefiting Asia’s exporters.
  - Downside risks: increased geoeconomic fragmentation and geopolitical tensions; in China, a deeper-than-anticipated property sector correction is a downside risk, while greater-than-expected policy support is an upside risk—both could cause spillovers to neighbors.
  - Japan’s exit from negative interest rate policy has proceeded smoothly thus far, easing previous concerns about spillovers from sudden repricing.

### Policy recommendations and priorities
- Monetary policy:
  - "Central banks should ensure that inflation returns smoothly to target, both in countries experiencing persistent price pressures and in countries facing deflationary risks."
  - Policymakers should "continue to focus firmly on domestic price stability and avoid making policy decisions overly dependent on anticipated interest rate moves by the Federal Reserve."
- Fiscal policy and public finances:
  - "Higher debt levels and interest costs weigh on public balance sheets—a renewed effort to advance fiscal consolidation is thus in order, especially as addressing medium-term structural challenges—including from aging populations and climate change—will require additional fiscal space."
- Financial sector supervision:
  - As tighter monetary policies of the last two years continue to pass through to corporate and household balance sheets, "supervisors should continue to vigilantly monitor the buildup of risks."

### Definitions and conventions used in the report
- Regional groupings:
  - "ASEAN" refers to Brunei Darussalam, Cambodia, Indonesia, Lao P.D.R., Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
  - "ASEAN-5" refers to Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
  - "Advanced Asia" refers to Australia, Hong Kong SAR, Japan, Korea, New Zealand, Singapore, and Taiwan Province of China.
  - "Emerging Asia" refers to China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
  - "Asia" refers to ASEAN, advanced Asia, Bangladesh, Bhutan, China, India, Maldives, Nepal, and Sri Lanka, and other Asian economies.
- Conventions:
  - In figures and tables, shaded areas show IMF projections.
  - "Basis points" refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
  - "Billion" means a thousand million; "trillion" means a thousand billion.
  - The term "country" may cover some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

### Acknowledgments and data vintage
- Report prepared by a team led by Johannes Wiegand, under the overall direction of Krishna Srinivasan and Thomas Helbling. Main authors: Tristan Hennig and Monica Petrescu (lead). Contributions by Julia Estefania Flores, Rahul Giri, Daniel Jimenez, Chris Redl, Vyshnavi Thumbala Saikrishnan, and Yizhi Xu. Lily Alvarado and Judee Yanzon assisted with preparation. Edited and coordinated by Cheryl Toksoz of the IMF’s Communications Department.
- "The report is based on data available as of April 2, 2024, and includes comments from other IMF departments."

*International Monetary Fund — Regional Economic Outlook: Asia and Pacific (April 2024).*

### 2. China: Market Price Indices and Consumer Confidence

### 2. China: Market Price Indices and Consumer Confidence

### Recent developments and indicators
- Services and manufacturing PMIs remain sluggish (PMI less than 50; positive = expansion).
- Outbound tourism is still far from a full recovery; latest monthly Chinese tourist arrivals measured as percent of 2019 same month level remain well below pre-pandemic levels.
- In China, headline inflation turned negative in October 2023 but returned to positive territory in February, owing in part to an uptick in core inflation around the Lunar New Year.
- Figure sources: Bloomberg Finance L.P.; China National Bureau of Statistics; Haver Analytics; and IMF staff calculations.
- Note: Data labels in figures use International Organization for Standardization (ISO) country codes. PMI = purchasing managers’ index.

### Inflation drivers and dynamics
- Decomposition categories shown: Headline CPI; core (CPI basket excluding food and energy, fuel, and transport); Food; Energy/fuel/transport; Other categories (core).
- At a more granular level:
  - Group 1 (including Australia, Korea, New Zealand): inflation still substantially above target in late 2023, owing in part to sustained price pressures from services.
  - Group 2 (emerging markets and Japan): headline inflation has returned close to central bank target ranges and core inflation has been broadly contained.
  - Group 3 (notably China and Thailand): falling commodity prices—and, in Thailand, the extension of energy subsidies—pushed consumer price inflation into negative territory, while core inflation has remained positive but is low.
- Panel notes: Asia AE includes Australia, Hong Kong SAR, Japan, Korea, Macao SAR, New Zealand, Singapore, and Taiwan Province of China. Asia EMDE includes China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

### Monetary and financial conditions
- Financial conditions in Asia and the Pacific eased in the second half of 2023:
  - Expectations of monetary easing in both Asia and the United States supported a sizable reduction in borrowing costs.
  - Increased global appetite for emerging market assets reduced sovereign spreads, especially in frontier markets.
- Bank lending rates have been slow to follow and have remained close to the levels reached during the peak of monetary tightening in the first half of 2023.
- Banks increased the intermediation spread between lending and deposit rates, bolstering bank profitability.
- Policy rates in Asia have been unusually low relative to the United States, reflecting Asia’s more benign inflation outcomes; this has driven sharp exchange rate movements vis-à-vis the US dollar.
- Example: depreciation pressures on Asian currencies abated in the fourth quarter when the Federal Reserve signaled a shift to a more accommodative policy stance, only to pick up again in the last few months as strong employment and inflation figures in the United States dampened expectations of imminent monetary loosening.
- Figure sources: Bloomberg Finance L.P.; Haver Analytics; IMF staff calculations.
- Note: In panel 2, sample includes Australia, Hong Kong SAR, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, and Singapore. EMBI = Emerging Markets Bond Index.

### Growth projections and drivers (Asia and Pacific)
- Regional outlook:
  - In 2024, growth in Asia and the Pacific is projected to slow slightly to 4.5 percent—an upward revision of 0.3 percentage point relative to the October 2023 Regional Economic Outlook: Asia and Pacific.
  - For 2025, growth in the region is projected at 4.3 percent—unchanged from October.
  - The 2024 upward revision partially reflects carryover from strong growth outcomes in the second half of 2023.
- China:
  - Growth in China is projected to slow from 5.2 percent in 2023 to 4.6 percent in 2024 and further to 4.1 percent in 2025, reflecting continued weakness in the property sector and declining potential growth amid subdued productivity growth and an aging population.
  - In China, an upward revision of 0.4 percentage point also reflects stimulus measures announced in October, with public spending forecast to be a significant contributor to growth.
- Advanced Asia:
  - Growth projected to slow marginally to 1.6 percent in 2024 (from 1.7 percent in 2023).
  - In 2025, growth is forecast to pick up slightly to 1.8 percent.
  - Japan: growth expected to slow from 1.9 to 0.9 percent in 2024; robust wage settlements expected to support a recovery in consumption.
  - Australia: growth expected to decline from 2.1 percent to 1.5 percent in 2024.
  - New Zealand: growth expected to be about 1.0 percent in 2024.
  - Korea: growth projected to increase from 1.4 to 2.3 percent.
  - Singapore: growth projected to increase from 1.1 to 2.1 percent.
- Emerging Asia (other highlights):
  - India: 2024 projection revised upward by 0.5 percentage point to 6.8 percent.
  - Philippines: 2024 projection revised upward by 0.3 percentage point to 6.2 percent.
  - Indonesia: growth expected to remain strong and steady at 5.0 and 5.1 percent in 2024 and 2025, respectively.
  - Malaysia: growth around 4.4 percent.
  - Thailand: growth more subdued at 2.7 percent in 2024.
  - Frontier markets and small states: Bangladesh growth projected to slow to 5.7 percent in 2024 (from 6 percent in 2023); Mongolia growth for 2024 revised up to 6.5 percent (from 4.5 percent forecast in October); Pacific island countries growth forecast to strengthen to 4.0 percent in 2024 (from 3.3 percent in 2023), supported by a rebound in tourism.

### Inflation outlook and policy stance
- Inflation is projected to converge to central bank targets by the end of 2024 in most of the region, conditional on macroeconomic policies staying the course.
- Regional guidance:
  - Economies with inflation materially above targets and positive output gaps at end-2023 (including Australia and New Zealand): disinflation expected to be supported by tight monetary and fiscal policies and declining commodity prices.
  - China and Thailand (inflation low and output gaps negative at end-2023): an accommodative policy stance would boost demand, help close output gaps, and push inflation back into positive territory.
  - Emerging markets where inflation is at or close to target: core inflation largely expected to remain contained; headline inflation may fall further due to lower energy prices in some economies, while food-price pressures (for example, rice in India) may slow headline disinflation in others.
  - Japan: inflation expected to stabilize about 2 percent in the coming years amid solid wage growth, partly offsetting the phase-out of energy subsidies.
- Figure notes: Data as of April 15, 2024. eop = end of period; WEO = World Economic Outlook.

### Key risks
- Overall: Near-term risks have improved relative to October 2023 and are now broadly balanced; disinflation has increased the prospect of more accommodative monetary policies and made a soft landing more likely.
- Risks surrounding China’s property sector correction:
  - A larger and more prolonged slump in real estate investment could diminish consumer confidence, intensify disinflationary pressures, and further compromise the balance sheets of local governments.
  - Entrenched weakness could lead to broader deflationary pressures, weigh on domestic demand, and revalue debt levels.
  - Weaker activity in China could trigger spillovers to the region: weaker demand for regional exporters; declining Chinese export prices could pressure competitors’ profit margins and potentially provoke retaliatory measures.
  - IMF staff analysis suggests price pressures from China reduce both export prices and export quantities of neighboring countries, especially those with similar export structures.
  - Upside: greater-than-expected fiscal and monetary policy support could boost growth in China and neighboring countries.
  - Policy recommendation: contain property sector risks with a comprehensive package that accelerates the exit of nonviable property developers, promotes the completion of housing projects, and manages debt risks of local governments; support household income if private domestic demand weakens further; avoid policies that further boost supply (e.g., investment subsidies to specific firms and sectors) as they would contribute to overcapacity and reinforce deflationary pressures.
- External risks:
  - Trade disruptions: attacks on cargo ships in the Red Sea have provoked rerouting of trade between Asia and Europe around the Cape of Good Hope, driving up shipping costs and increasing transport times (Drewry World Container Index series referenced).
  - Continued disruptions could raise trade costs and complicate disinflation; longer shipping times could reduce trade volumes due to rigid short-term shipping capacity.
  - Pacific island countries are especially vulnerable due to high import dependence and poor connection to global shipping networks.
  - Geopolitical escalation (Gaza–Israel, expanded Russia–Ukraine conflict) could trigger commodity price spikes.
- Disinflation and monetary policy risks:
  - Sticky inflation in advanced economies (e.g., slower-than-expected disinflation in the United States) could postpone policy rate cuts, increasing borrowing costs in Asia and pressuring equity valuations; this could keep Asian policy rates unusually low relative to the federal funds rate and raise the potential for sharp exchange rate movements.
  - Inflation undershooting in economies already below targets could lead to prolonged low inflation or deflation, elevating real interest rates, weighing on growth, and increasing debt burdens and real debt servicing costs; timely macroeconomic policy easing would be essential if undershooting emerges.
  - Full impact of monetary tightening yet to be felt: IMF staff analysis suggests many Asian firms’ higher interest earnings on short-term corporate assets have offset higher debt service costs so far; the full impact is likely to be felt only in two to three years given corporate liability maturities.
- Spillovers from Japan’s monetary policy normalization:
  - In mid-March, the Bank of Japan increased short-term rates and abolished yield curve control; market reaction has been muted and the risk of cross-border financial spillovers appears diminished relative to last October.
- Geoeconomic fragmentation:
  - Restrictions on trade and cross-border movements of capital and technology pose a risk to highly integrated Asian economies; new trade restrictions continue to be imposed in the region and outside.
  - Trade between China and the United States has declined, with evidence of rerouting through other countries that lengthens supply chains and increases costs.
  - IMF research suggests accelerated geopolitical fragmentation would reduce foreign direct investment and portfolio flows and slow innovation and technology adoption.
- Artificial intelligence:
  - AI likely to bring both growth opportunities and economic and social challenges.
  - IMF research suggests Asia’s emerging markets may be somewhat better prepared than peers in other regions, reflecting, among other things, better digital infrastructure, innovation climate, and a better equipped labor force, but with significant heterogeneity.

*International Monetary Fund — Regional Economic Outlook: Asia and Pacific, April 2024.*

### 1. Container Prices

### 1. Container Prices

### Overview
- Chart headings indicate measurements in "US dollars per 40-foot container" and "Liner Shipping Connectivity (Index, most connected country in 2023 = 100)" covering Jan. 2022 through Jan. 24.
- The chapter situates container prices and connectivity trends within broader regional macroeconomic developments in "Asia and Pacific: Steady Growth amid Diverging Prospects" (April 2024).

### Monetary and Exchange Rate Policy
- Near-term priority for central banks: ensuring that inflation returns smoothly to target in both high-inflation and deflation-risk economies.
- Disinflation progress in 2023 has led to divergent challenges for central banks (Figure 12).
- Policy guidance:
  - In economies where core inflation remains above target: it may be necessary to keep policies tighter for longer to achieve higher real policy rates that ensure a sustainable return to price stability.
  - In economies where inflation is at or close to target, near-term inflation expectations are stable, and real interest rates are elevated: room may emerge in the course of 2024 to shift monetary policy to a more neutral stance.
  - In economies where inflation is low: maintaining or moving to a less restrictive stance is called for to avoid deflationary expectations taking hold.
- Market expectations around central bank policies in 2024 and 2025 are broadly consistent with these objectives.
- Risks and recommendations:
  - Divergent monetary policy stances within Asia and versus advanced economies could engender capital flow movements and exchange rate volatility—similar to depreciation pressures on Asian currencies in 2022 and 2023.
  - Several Asian central banks allowed exchange rates to adjust and refrained from large foreign exchange interventions during prior episodes.
  - Increase in domestic investor participation in emerging Asian sovereign debt markets may have strengthened resilience to capital flow volatility and increased degrees of freedom for central banks (Figure 13).
  - Asian central banks should focus firmly on domestic price stability and avoid making policy decisions overly dependent on anticipated Federal Reserve moves; tying domestic policy too closely risks falling behind (or moving ahead of) the “curve” and de-anchoring inflation expectations.
  - Allowing exchange rates to adjust would be an effective response to possible disinflationary pressures from China and other countries.
- Data notes:
  - Figure 12: Simple average of real interest rates. “Elevated inflation” includes Australia, Korea, and New Zealand. “At or near target” includes India, Japan, and the Philippines. “Low inflation” includes China and Thailand. Shaded area marks start of projections and are based on market implied policy rates. Data as of April 2, 2024.
  - Figure 13: Latest through February 2024. AE = advanced economies; ASEAN-5 = Indonesia, Malaysia, Philippines, Singapore, and Thailand.

### Fiscal Policy
- Near-term priority: a renewed effort to advance medium-term fiscal consolidation to curb public debt and rebuild buffers following large pandemic interventions.
- Observations:
  - In 2023, consolidation in Asia and the Pacific fell well short of staff projections.
  - New debt issued at higher interest rates in the past two years has increased interest payments as a share of revenues, risking crowding out critical investments and other priority spending.
- IMF staff projections:
  - The adjustment implied for the next three years would suffice to stabilize debt-to-GDP ratios in most economies—except in countries where cyclical considerations may suggest a more accommodative near-term stance (Figure 14).
  - Even with envisaged consolidation, government debt would remain well above prepandemic levels—especially in Pacific island countries.
- Policy recommendations:
  - Reforms to target revenue mobilization and expenditure rationalization, including reductions in costly fuel subsidies, are critical to reduce debt levels, contain debt service costs, and free up budgetary space for development needs, social safety nets, and climate adaptation.
- Data notes:
  - Figure 14: Analysis incorporates staff projections based on announced policies. In panel 1, consolidation needed to stabilize debt at 2026 levels is illustrative and not intended as a policy recommendation. AE = advanced economies; EMDE = emerging market and developing economies; EM = emerging markets; LIDCs = low-income and developing countries; PICs = Pacific island economies.

### Financial Supervision
- Recommendations:
  - Financial supervisors should closely monitor the buildup of financial vulnerabilities.
  - Policymakers should stay vigilant and be ready to act if loan delinquencies increase.
- Observations:
  - Banking sectors feature ample capital buffers and rising profitability.
  - The full effect of post-COVID-19 monetary tightening has not yet passed through to most countries’ corporate sectors.
  - Debt-at-risk metrics remain above prepandemic levels for the real estate sector, where earnings have failed to keep up with interest costs (Figure 15).
  - While commercial real estate has not yet seen significant pressures, supervisors should continue to monitor the sector.
- Data notes:
  - Debt at risk is defined as the share of corporate debt held by firms with interest coverage ratios below one.
  - Figure 15: ICR defined as the ratio of EBIT to net interest cost over the previous four quarters. State-owned enterprises are excluded. In panel 2, for each sector, the simple average of debt at risk in each country with data available is shown; country sectors with fewer than 10 firms are excluded.

### Securing Durable Medium-Term Growth
- Structural challenges facing Asia and the Pacific:
  - Global economic fragmentation disproportionately affects many Asian economies due to deep integration into global trade and supply chains.
  - Climate change threatens activity in many sectors and disproportionately affects emerging markets, low-income countries, and small island economies.
  - Rapid population aging in many Asian economies exerts downward pressure on potential growth and stretches social security systems (Figure 16).
  - New technologies, such as artificial intelligence, create growth opportunities and economic and social challenges.
- Policy areas common to many countries:
  - Reducing inefficiencies in labor market and credit markets.
  - Entitlement reform and modernizing immigration policies.
  - Streamlining cumbersome business regulation and restrictions on trade.
  - Transitioning to cleaner energy sources, including by raising the cost to fossil fuels.
  - Investing in capital and workforce skills to harness artificial intelligence.
- On industrial policy:
  - Use of industrial policies has greatly increased in Asia and the Pacific. While they can target broader policy objectives, such measures often contain trade-distorting elements that may undermine policy effectiveness and reinforce fragmentation.
  - Industrial policies can be appropriate when addressing clearly identifiable externalities or market failures, but they need to be consistent with World Trade Organization rules (Box 3).

### Box 1. Transmission of Renminbi Shocks to Other Asian Economies
- Context:
  - Importance of the Chinese renminbi in Asia has grown steadily since China allowed limited exchange rate flexibility starting around 2010.
  - The box studies spillovers from large renminbi depreciation events to other Asian currencies and economies.
- Findings:
  - Asian currencies depreciated sharply against the US dollar in 2023, triggered in part by Federal Reserve monetary tightening increasing US interest rates relative to Asia; the renminbi also depreciated due to domestic factors like the contraction of China’s real estate sector and rising geopolitical risks.
  - Unconditional correlation of most Asian currencies with the renminbi is high; this could reflect both spillovers and common factors such as elevated US interest rates and heightened global uncertainty.
  - Using local projections controlling for global factors, results suggest large renminbi depreciations trigger substantial but short-lived depreciation pressure on other Asian currencies.
  - Estimates indicate about 50 percent exchange rate pass-through in the short term on average; the impact fizzles out after about six months.
  - Transmission differs from depreciation shocks to the Japanese yen, which are followed by more permanent currency depreciations.
- Export competition channel:
  - Renminbi depreciations can worsen the terms of trade of Asian exporters and reduce demand for their currencies.
  - A difference-in-difference local projection using an export similarity index shows Korea, Malaysia, and Vietnam—identified as having the most similar export structure to China—experience disproportionately greater currency pressure after renminbi depreciations.
- Methodology and data notes:
  - Panel comprises currencies from nine emerging Asian economies plus Korea and Taiwan Province of China, starting in 2010.
  - Large depreciations defined as larger than a standard deviation or 2.7 percent depreciations against the US dollar in a month; such events occurred in response to June 2012, 2014, 2015, 2018, and 2021–23 episodes listed in the box.
  - Controls include Chicago Board Options Exchange Volatility Index, a US dollar index, countries’ interest rate differentials with China and the United States, China’s domestic inflation rate, and lagged exchange rates for the past four quarters.
- Box prepared by Chris Redl and Yizhi Xu.

*International Monetary Fund — Asia and Pacific: Steady Growth amid Diverging Prospects (April 2024).*

### Box 1. (continued)

### Box 1. (continued)

### Exchange-rate dynamics and spillovers of CNY and JPY depreciations
- Box Figure 1.1: Currency value changes against USD (Indexed, January 1, 2023 = 100) and correlation between Asian currencies and CNY (Against the US dollar; 2015–23). Sources: Bloomberg Finance L.P.; and IMF staff calculations.
- Note: In panel 1, a value below 100 implies currency depreciation. CNY = Chinese yuan; IDR = Indonesian rupiah; INR = Indian rupee; JPY = Japanese yen; KRW = Korean won; MYR = Malaysian ringgit; PHP = Philippine peso; THB = Thai baht; USD = US dollar; VND = Vietnamese dong.
- Box Figure 1.2: Impulse Response of Asian Currency Exchange Rates after CNY Depreciation Shocks (Percent). Responses shown over Months 0–10 to CNY depreciation shocks.
- Key empirical findings:
  - Renminbi (CNY) depreciation shocks lead to depreciation in neighboring Asian currencies (impulse-response evidence shown in Box Figure 1.2).
  - Yen (JPY) depreciation shocks are absorbed largely by neighboring countries’ exchange rates rather than by export prices or volumes—hence yen depreciations do not generate significant negative spillovers to other countries’ exports.
- Sources and notes: Bloomberg Finance L.P.; and IMF staff calculations. Dashed lines indicate 90 percent confidence interval. CNY = Chinese yuan; JPY = Japanese yen.

### Real economic impact on exports
- Box Figure 1.3: Impulse Response of Asian Export Columes after CNY or JPY Depreciation Shocks (Percent), showing months 0–10 responses.
- Key empirical finding:
  - Export volumes tend to contract some six months after a large renminbi depreciation—thus, renminbi depreciations have a real economic impact.
  - By contrast, JPY depreciations do not generate significant negative spillovers to other countries’ exports.
- Sources and notes: Bloomberg Finance L.P.; and IMF staff calculations. Dashed lines indicate 90 percent confidence interval. CNY = Chinese yuan; JPY = Japanese yen.

*Prepared using Bloomberg Finance L.P.; and IMF staff calculations.*

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### Box 2. The Impact of Monetary Tightening on Corporate Interest Costs

### Stylized facts on corporate debt structure and interest costs
- Regional context: Monetary policy rate hikes of 2022 and early 2023 have had, thus far, only a limited impact on corporate net interest costs in the Asia-Pacific region.
- Corporate debt structure predisposes rapid transmission:
  - High reliance on short-term debt necessitates fast rollover.
  - Limited capital market development increases dependence on bank loans.
- Despite this, net effective interest rates (net interest costs as a share of the stock of debt) have increased by substantially less than policy rates to date.

### Mechanisms explaining muted pass-through
- High corporate savings in the region are key:
  - Firms can draw down cash reserves to avoid issuance of expensive new debt, at least temporarily.
  - Corporate savings generate interest earnings; in the last two years, corporate interest earnings (as share of liquid assets) increased in advanced economies and in some emerging markets in the Asia-Pacific region, and in many cases these increases were greater than increases in interest paid (as a share of debt).
  - Corporate savings tend to have shorter maturities than corporate debt and react more quickly to changes in borrowing costs.
- Consequence: cooling effects of the Asian monetary tightening cycle are still being passed through to the corporate sector over time as firms gradually roll over debt while policy rates remain elevated.

### Empirical evidence from local projections
- Methods: Local projection methods from Jordà (2005) using firm-level quarterly data for 10 Asian countries for 1996:Q3 to 2023:Q2; monetary policy shocks as identified by Deb and others (2023).
- Key results:
  - The impact of a monetary policy tightening shock on gross effective interest rates is small and positive initially, and then peaks after one year.
  - The impact on net effective interest rates is negative at first, turning positive only after around two years.
  - Impulse responses reported are to a 100 basis point contractionary monetary policy shock (Box Figure 2.1, panel 4).
- Definition: Net interest cost is defined as interest paid on liabilities less interest earned on assets.

### Policy implications and recommendations
- The squeeze on corporate balance sheets from monetary tightening is expected to phase in over the coming months—even if policy rates start to decline.
- Financial supervisors in the region should:
  - Continue to closely monitor highly leveraged sectors.
  - Remain alert to the buildup of financial vulnerabilities within the corporate sphere.
- Note: If policy rates decline, earned interest is also expected to decline rapidly.

*This box was prepared by Julia Estefania-Flores and Monica Petrescu. Analysis is based on publicly listed firms, which represent the largest and most systemic corporates.*

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### Box 3. Industrial Policies in Asia

### Recent trends and stylized facts
- The last decade has seen a wave of “new” industrial policies (IP) globally in the face of climate change, aging and automation, and rising geopolitical and geoeconomic rivalry.
- New IP are not exclusively driven by growth and development objectives; they may also be driven by geopolitical and national security concerns linked to geoeconomic fragmentation.
- Data-based stylized facts (Box Figure 3.1 and related analysis):
  - 2017 is an inflection point after which the number of IP measures globally rose sharply, coinciding with a sharp increase in the risk of geoeconomic fragmentation.
  - In Asia-Pacific, both advanced economies and emerging markets have been very active in deploying IP measures; this contrasts with the rest of the world where advanced economies have taken a clear lead.
  - Most recent IP measures, regardless of stated objective, are likely to distort trade and hence may contribute to fragmentation.
  - Subsidies (financial grants, state guarantees, loans, aid) are the dominant class of IP instruments globally.
  - Asia-Pacific implements a larger share of IP measures via traditional trade tools (trade tariffs and nontariff barriers, including trade bans/quotas/licensing and localization requirements) than the rest of the world.
  - Asia-Pacific leans more toward IP targeting critical minerals, semiconductors, or advanced technology products. Advanced technology products account for about 15 percent of all IP measures in Asia-Pacific and about 12 percent in the rest of the world.

### Implications and policy guidance
- Given potentially large costs of geoeconomic fragmentation, findings underscore the need to carefully consider implementation of IP and prevent an adverse feedback loop between IP and fragmentation.
- Sound IP design principles:
  - Target well-identified market failures.
  - Be time-bound and cost-effective.
  - Be anchored by cost-benefit analysis and strong governance to minimize rent-seeking and resource misallocation.
  - Horizontal structural reforms usually need to complement sound IP or may even represent an alternative.
  - Avoid rapid, overlapping IP interventions across sectors, objectives, and policy tools to reduce opacity and distortions and to make cost-benefit assessment tractable.
  - IP should respect international obligations, including World Trade Organization rules.

*This box was prepared by Rahul Giri. Sources: Hassan and others (2019); Juhász and others (2023); New Industrial Policy Observatory database; NL Analytics, Inc.; and IMF staff calculations.*

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### Table 1. Asia: Real GDP — Selected entries (Year–over–year change; percent)
- Table header and aggregates as presented in source: "Table 1. Asia: Real GDP (Year–over–year change; percent) Actuals and Latest Projections Difference from October 2023 WEO"
- Select regional/aggregate entries (preserving numeric strings exactly as they appear):
  - "Asia7. 03.95.04.54.30.40.30.0"
  - "Advanced Economies4.31.81.71.61.80.0– 0 .10.2"
  - "Australia5.63.82.11.52.00.30.30.0"
  - "New Zealand5.62.40.61.02.0–0.50.0– 0 .1"
  - "Japan      2.61.01.90.91.0– 0 .1– 0 .10.4"
  - "China      8.43.05.24.64 .10.20.40.0"
  - "India3 9.77. 07. 86.86.51.50.50.2"
  - "Indonesia      3.75.35.05.05 .10.00.00 .1"
  - "ASEAN 6 3.45.54.24.64.80.00.00.0"
  - "ASEAN–5 7 4 .15.54 .14.54.6– 0 .10.00 .1"
- Sources: IMF, World Economic Outlook database; and IMF staff estimates and projections.
- Notes from table (preserved phrasing):
  - "ASEAN  =  Association  of  Southeast  Asian  Nations;  EMDEs  =  emerging  market  and  developing  economies;  WEO  =  World Economic Outlook."
  - "1 Taiwan Province of China forecast data source is Consensus Forecast."
  - "2 EMDEs exclude Pacific island countries and other small states."
  - "3 India’s data are reported on a fiscal year basis. Its fiscal year starts on April 1 and ends on March 31."
  - "4 Pacific island countries aggregate is calculated using simple average; all other aggregates are calculated using weighted average."
  - "5 Tonga’s data are reported on a fiscal year basis. Its fiscal year starts on July 1 and ends June 30."
  - "6 ASEAN comprises Brunei Darussalam, Cambodia, Indonesia, Lao P.D.R., Malaysia, Myanmar, the Philippines, and Singapore."
  - "7 ASEAN–5 comprises Indonesia, Malaysia, the Philippines, Singapore, and Thailand."

*Sources: IMF, World Economic Outlook database; and IMF staff estimates and projections.*

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_Source: https://www.imf.org/-/media/files/publications/reo/apd/2024/april/english/text.pdf_