Global Challenges Facing ASEAN and Policy Priorities

IMF News, November 13, 2022

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In the last three years—a relatively short period of time—we have been hit by "shock upon shock upon shock": a global pandemic, a war in Europe, and a cost-of-living crisis.
These shocks led to supply chain interruptions and a very rapid increase of energy and food prices, creating stubbornly high inflation and tightening financial conditions.
Global growth trajectory:
- 6 percent in 2021
- 3.2 percent in 2022
- Projected 2.7 percent for 2023
Risk assessment:
- There is a 25 percent probability that growth may actually fall below 2 percent in 2023.
Strategic concern:
- A troubling trend toward increased fragmentation at a time when global cooperation is most needed.

Growth projections for ASEAN:
- 5 percent this year
- 4.7 percent next year
Reasons for stronger performance:
- Steady progress on reforms
- Tremendous integration of ASEAN economies
Caveat:
- ASEAN economies face scarring from the pandemic and the global slowdown; policies should account for this scarring and the broader global context.

Monetary policy:
- Priority is to fight stubborn inflation.
- Central banks must tighten and do so until there is a tangible reduction in inflation.
- Major central banks, including the Fed, are expected to "stay the course."
- Tighter policy regimes are not expected to be short-lived; countries need to consider this in their monetary and exchange rate policies, recognizing that the strong dollar accompanies high interest rates.
Fiscal policy:
- Fiscal support should be prudently directed to those who need help the most.
- Policy targeting is important because scarce public resources may be required for an extended period.
Structural and medium-term opportunities for ASEAN:
- Supply chain changes are creating new opportunities.
- Opportunities from the new green climate-resilient economy are available to be captured.
- Digitalization has already led to higher performance in the region, while carrying its own risks.
Strategic recommendation:
- ASEAN should play a key role in preventing fragmentation and encouraging global cooperation, leveraging its economic integration and reform progress.

Source: Global Challenges Facing ASEAN and Policy Priorities, Kristalina Georgieva, November 13, 2022.