Transcript of the Asia and Pacific Department Press Briefing
IMF News, October 13, 2023
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- Published: October 13, 2023
Global outlook and main risks
- Global growth is forecast to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024.
- Outlook is supported by continued consumption dynamism in the U.S., but faces pressures from:
- China's worsening property crisis;
- tight policy stances around the world;
- the consequence of Russia's war in Ukraine;
- growing geoeconomic fragmentation.
- IMF blog mentioned: "Asia Continues to Fuel Global Growth, But Economic Momentum is Slowing."
- Full Regional Economic Outlook Report launch: October 18 (next Wednesday), in Singapore at 9 a.m. local time.
Asia-Pacific regional growth and contribution
- Asia-Pacific region growth: expected to grow by 4.6 percent in 2023 and by 4.2 percent in 2024.
- Region projected to contribute to about two-thirds of global growth in 2023.
- ASEAN economies: expected growth of 4.2 percent in 2023 and 4.6 percent in 2024; downward revision of 0.4 percentage points in 2023 and 0.3 percentage points in 2024 relative to April WEO.
- GDP in the Pacific Island countries with high dependance on tourism is still more than 10 percent below pre-pandemic levels with challenges from higher fiscal deficits, elevated debt, and shrinking fiscal space.
Major economies in the region — forecasts and drivers
- China:
- Revised growth forecast: 5 percent for 2023 and 4.2 percent for 2024.
- Reopening boosted services and retail sales; manufacturing benefit proving short-lived.
- Real estate sector: further pressures on debt repayments, home sales, and investment.
- Manufacturing PMI: showed an expansion of activity in September; retail sales year-on-year growth improved but monthly data are volatile.
- Japan:
- Projected to grow by 2 percent in 2023 (0.7 percentage point increase from April WEO forecast).
- Drivers: strong domestic demand, accommodative monetary and fiscal policies.
- India:
- Expected to grow by 6.3 percent in both 2023 and 2024.
- Drivers: large public capital expenditure push and resilient domestic demand.
- Korea:
- Near-term growth dampened by downturn in technology exports; expected to rebound next year as technology cycle turns.
- Australia:
- Large public investment and robust external demand should lift growth, but domestic demand weakening due to rising mortgage payments and lower real disposable incomes.
Activity patterns across sectors and countries
- Services: continued resilience and strength across Asia (PMI evidence).
- Manufacturing: weakness across Asia; persistent downturn of the technology cycle weighing on manufacturing in advanced economies and, in September, manufacturing activity in Asia's emerging markets excluding China moved into negative territory.
- China-specific note: core inflation came at 0.7 percent; IMF does not see deflation in baseline and expects core inflation to continue rising as recovery continues and capacity utilization increases.
Inflation, monetary policy guidance, and risks
- Headline inflation has declined from post-pandemic peaks as global commodity prices receded and monetary policy bites, but signs of renewed price pressures have emerged more recently.
- In a few advanced economies in Asia, core inflation remains sticky due to tight labor markets and positive output gaps.
- Except for Japan, inflation is expected to return to within target ranges by the end of 2024.
- Policy guidance:
- Central banks should "stay the course" with policies to ensure inflation is durably at target and expectations are anchored.
- With accommodative financial conditions in Asia's emerging markets there is "no urgent need to ease monetary policy."
- Avoid rushing to cut rates unless inflation comes down to target ranges; targeted support to the poor and vulnerable recommended where subsidies are reduced.
Financial markets, vulnerabilities, and supervisory advice
- Financial conditions in advanced Asia have tightened as higher rates take hold; emerging Asia has seen accommodative conditions but is exposed to external pressures.
- Recent developments:
- Rise in U.S. long-term yields after the September U.S. Fed meeting has exerted pressure.
- Long-term local currency sovereign yields in some Asia and Pacific economies have increased substantially since the FOMC meeting in September.
- Asian currencies have depreciated across the board, though to a limited extent compared to previous USD strengthening episodes.
- Supervisory and policy recommendations:
- Financial supervisors should remain vigilant on systemic risks and calibrate macroprudential measures given higher leverage and rates.
- If financial stress emerges, deploy liquidity and other support measures promptly, and modernize resolution frameworks.
Structural challenges and policy priorities
- Region faces persistent medium-term output losses, China's structural slowdown, geoeconomic fragmentation, and inflation.
- Policy priorities highlighted:
- Rebuild fiscal buffers after pandemic support; wind down broad pandemic measures and target assistance to poor and vulnerable.
- Bolster capital and liquidity buffers in financial sector.
- Use exchange rate flexibility to absorb shocks.
- Continue structural reforms to improve productivity, connectivity, digitalization, and business environment (examples for China: restructure distressed developers and unfinished projects, restructure local government debt, price adjustments, level playing field between private and state-owned enterprises, reduce internal restrictions on labor mobility).
- For Sri Lanka and similar cases: pursue SOE reforms and targeted cost-reflective pricing with compensatory targeted support for the poor and vulnerable.
Scenarios on geoeconomic fragmentation and trade reconfiguration
- IMF analysis on de‑risking/geofragmentation scenarios ("friendshoring" and "reshoring"):
- Both scenarios reduce global growth and reduce China's growth.
- Historical/quantified linkage: when Chinese growth declines by 1 percentage point, on average other economies' growth declines by 0.3 percentage points over the medium term.
- Short-term trade diversion may benefit some countries (e.g., Vietnam) from FDI or assembly relocation, but over the long run aggregate demand losses mean "everybody loses."
- Recommendation: fight against forces of fragmentation and de‑risking; promote integration.
Country-specific notes and program status references
- Korea: began retrenching fiscal support in the second half of 2022 and continued in 2023 to build fiscal buffers.
- Sri Lanka:
- IMF emphasizes cost-recovery pricing and targeted support; SOE and electricity sector reforms part of program engagement.
- Debt restructuring engagements and financing assurances will be assessed in reviews; IMF does not negotiate private creditor agreements but assesses consistency with debt targets and macro framework.
- Nepal:
- Growth stalled last year; projected mild recovery of 3.5 percent for the year supported by strong tourism and additional hydropower capacity.
- Increased absorption of external concessional financing and improved domestic revenue mobilization recommended.
- Progress: ECF-supported program has made good progress and led to a staff level agreement on the third review under the ECF.
- Bangladesh:
- IMF projection: 6 percent growth for FY '24 (unchanged from FY '23); government target cited at 7.5 percent for FY '24.
- Policy advice: maintain macro stability (tight monetary policy, unified exchange rate flexibility, prudent fiscal stance) while pursuing revenue mobilization and structural reforms to raise medium-term potential.
- Indonesia:
- IMF forecasts 5 percent growth in 2023 and 5 percent in 2024.
- Macro policies described as prudent: inflation control, prudent fiscal stance, structural dynamism.
- IMF hopes continuity of reform-oriented policies through upcoming political cycles.
Transcript of the Asia and Pacific Department Press Briefing — October 13, 2023, IMF Communications Department.