Transcript

Transcript of Press Briefing on Regional Economic Outlook for Asia and Pacific, Singapore, October 2023

October 18, 2023

PARTICIPANTS:

Moderator:

HUONG LAN (PINKY) VU, COMMUNICATIONS OFFICER

Speakers:

KRISHNA SRINIVASAN, DIRECTOR, ASIA AND PACIFIC DEPARTMENT

THOMAS HELBLING, DEPUTY DIRECTOR, ASIA AND PACIFIC DEPARTMENT

SHANAKA (JAY) PEIRIS, DIVISION CHIEF OF REGIONAL STUDIES, ASIA AND PACIFIC DEPARTMENT

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MS. VU: Good morning, everyone! Thank you for joining the IMF’s press briefing on the Regional Economic Outlook for Asia and Pacific.

My name is Huong Lan Pinky Vu from the Communications Department at the IMF. I am delighted to be joined by three speakers:

- Krishna Srinivasan, Director, Asia and Pacific Department

- Thomas Helbling, Deputy Director, Asia and Pacific Department

- Jay Peiris, Division Chief of Regional Studies, Asia and Pacific Department

It’s great to be back in Singapore and see many of you in person. We also have journalists joining virtually from other countries in Asia and from other parts of the world. A warm welcome to all of you!

The title of this Regional Economic Outlook is Challenges to Sustaining Growth and Disinflation. As we speak, the report has been published on our website at IMF.org. Please do check it out.

To commence the briefing today, Krishna will give some opening remarks and then we will be happy to take your questions. Krishna, the floor is yours.

MR. SRINIVASAN: Good morning to everyone. It's very nice to be back here in Singapore. Thank you very much for joining our launch event for our latest Regional Economic Outlook for Asia and the Pacific, which has just been released on our website under the theme of Challenges to Sustaining Growth and disinflation. Please allow me to make a few opening remarks before we take your questions. Global growth is forecast to slow from 3.5 percent in 2022, to 3 percent in 2023, and 2.9 percent in 2024. The global outlook is supported by continued consumption dynamism in the US. But faces pressures from China's worsting property crisis, tight policy stances around the world, the consequences of Russia's war in Ukraine, the most recent conflict, and growing geoeconomic fragmentation. Despite a challenging global environment, the Asia and Pacific region remains a relative bright spot. It is expected to grow by 4.6 percent in 2023 and by 4.2 percent in 2024, which puts it on track to contribute about two thirds of global growth this year. And those numbers you can see from the table right behind me.

Now let me get into specific forecasts for a few major economies in the region. The reopening of China's economy has given the service sector and retail sales a boost, as experienced by other economies. However, the benefit to the manufacturing sector is proving short lived. The real estate sector in China is grappling with further pressures on debt repayments, home sales and investment. Based on these weaknesses, we have revised down China's growth forecast to 5 percent for 2023 and 4.2 percent for 2024. In Japan, the economy is predicted to grow by 2 percent in 2023. That is 0.7 percentage points higher than in our April forecast and reflects strong domestic demand, as well as accommodative monetary and fiscal policies. India's economic growth remains robust, driven by large public capital expenditure push and resilient domestic demand. The economy is expected to grow by 6.3 percent in 2023 and in 2024. Moving on to Korea. Although the downturn of technology exports is projected to dampen near term growth. Global momentum Korea the economy is expected to rebound next year as a tech cycle turns the corner. The economies in ASEAN are expected to see growth of 4.2 percent in 2023 and 4.6 percent in 2024, a downward revision of 0.4 percentage points in 2023 and 0.3 percentage points in 2024, relative to our April World Economic Outlook. The downgrade reflects not only weaker growth outturns and external demand, but also more lackluster domestic demand because of waning revenge consumption and monetary policy tightening. Now let me talk a little bit about inflation.

Now turning to inflation, headline inflation has declined from post pandemic peaks as global commodity prices have receded and monetary policy bites, although with signs of renewed price pressures emerging more recently. Moreover, in a few advanced economies in Asia, core inflation remains sticky due to tight labor market and positive output gaps. Except for Japan, inflation is expected to return within target ranges by the end of 2024. This puts Asia ahead of the rest of the world in terms of disinflation, although the risk of more persistent inflation could materialize given recent commodity and price spikes and exchange changes that are yet to fully pass through. Central banks should stay the course, with policies to ensure that inflation is durably at appropriate targets and expectations are anchored, with still accommodative financial conditions in Asia's emerging markets and the upside risks mentioned above, there is no urgent need to ease monetary policy. Higher oil prices could lead to higher inflation expectations and second rotten effects. Even in Asia's advanced economies, with tight labor markets requiring higher for longer rates.

Now moving to financial markets, financial conditions advance Asia have tightened as higher rates take hold, but emerging Asia has seen accommodative financial conditions with the rise in long term currency bond yields below that of the US. In the past few weeks, long term local currency yields, notably in some economies in the Asia Pacific, have increased substantially since the FOMC meeting in September. At the same time, Asian currencies have depreciated across the board, although to a limited extent compared to previous US dollar strengthening episodes. Financial supervisors in Asia should remain vigilant on systemic risks and calibrate macro potential measures given the higher leverage and rates. If financial sector stress were to emerge, deploying liquidity and other support measures promptly, while modernizing resolution frameworks would be important.

Let me close by saying a few words about the medium term outlook. We highlighted last April that China's growth is slowing down over time. This could affect the growth of other countries in Asia and the world because of China's deep integration into global value chains. Some countries may change their trade and production partners based on politics, what we call as French shoring, or bring back some of the production to their own currencies sorry, to their own countries, which we call as reshoring. But analysis shows that both scenarios would come with sizable costs, with reshoring substantially more costly than French shoring. Chapter three of A Regional Economic Outlook provides more detailed analysis on the impact of China's medium term slowdown. Structural policies to boost productivity and strengthen multilateral cooperation are urgently needed to mitigate medium term output losses and risks posed by global de risking.

To summarize, our main policy messages for the Asia Pacific region are to maintain sufficiently restrictive monetary policy stances until inflation is firmly back on target, continue with fiscal consolidation, use macro potential policies to tackle vulnerabilities in the financial sector and address rising inequality and facilitate the green transition. I'll stop here. I'll be happy to take questions. I'm joined here by Thomas and Jay, who will answer some of the questions. Thank you.

MS. VU: Thank you, Krishna. And we will now open the floor for your questions. For those in the room, if you wish to ask a question, please raise your hand and wait for me to call on you and we'll give you a microphone. And for those online, please put your questions in the chat and I will get to them later. So, with that, the floor is open for questions. Gentlemen, here, please.

QUESTIONER: Hello. All right, thank you for the briefing. I'm Jovi Ho, I write for the Edge Singapore here. So, just my first question. Can we give more color on IMF's lower forecast for Singapore this year? And what is the rationale behind the steep cut for 2023, while 2024 and 2025 figures remain unchanged? And my second question, I also know that inflation is suspected to remain elevated at 5.5. What is the IMF's projection for Singapore, given the GST hike and carbon tax hike next year? And finally, our Deputy Prime Minister said in Washington last week that Singapore would like to work with America on an update to the rules based order. So what is IMF's response to this? Because this includes the UN, IMF, and WTO. How can IMF ensure that your work remains relevant in Singapore and the region? Thanks.

MR. SRINIVASAN: Thank you for the question. Maybe I'll ask Jay to answer that question, please. Jay. You want the mic.

MR. PEIRIS: So, for Singapore, we've revised down our forecast, and we have 1 percent growth for 2023. Growth has been quite anemic in the first half, mainly because of a weaker global demand. So, I mean, that explains the lower external demand, explains some of the reduction in the growth forecast. We expect there to be an ongoing recovery, particularly services are still strong, labor market is strong. So that explains that we expect growth to pick up to 2.1 percent next year and the 2.5 percent, which is what we consider the medium term potential over the medium term, I mean, that's our medium term potential growth. So that's lower growth this year, partly because of the weak external demand and then a gradual pickup

inflation we are expecting it to gradually decline to 5.5 percent this year and 3.5 next year. I mean we are seeing easing of goods inflation but then we have some renewed pressures with oil but services inflation is coming down but it is a bit sticky, right, with the tight labor markets. So we do expect with the tight labor markets and increase in the VAT there will be some price pressures but that's why it's coming down a bit slow. But we do expect it to come within the 2 percent target in the medium term. So in that sense the trajectory is what is inflation by 2024 and within target by then. Ahead of most of the regions actually.

So on the question on the multilateral aspects of tensions. Yeah, on the tensions. One of the chapters in our report is geoeconomic fragmentation and its impacts and here one of our roles has been to kind of explain the implications of these scenarios to the world. So that's one aspect where we are playing a role and as you'll see there's quite detailed assessments of how which countries could be affected, what are the most important sectors, and what policies could help both the global economy and the economies in the region do to overcome some of the effects of this fragmentation. So I think we are playing a role as an independent view of things. How we're going? Of course, we have been calling for a multilateral and more dialogue, multilateral solutions but of course regional arrangements which also encourage greater integration and also are open to other members to join like RCEP or other also could help. So I mean when it comes to international there have been some arrange international current like in the US Europe on some policies which go against multilateral aspects like the WTO arrangements and always our recommendation has been that you should be more consistent with WTO obligations. So that has been our call generally. Thank you.

MS. VU: We go to the lady.

QUESTIONER: Good morning Gorethy Kenneth here from Papua New Guinea. What are the risks and potential consequences associated with weaker than expected recovery in China, as well as global de-risking policies and economic fragmentation? My second question is recently IMF approved some loans for Papua New Guinea to help specifically for the governance related programs, including audits of government spending and supporting of work of anti-corruption body. Are you satisfied with the progress made so far in terms of meeting the loan conditions? And my last question is shortage of foreign exchange is causing issues for Papua New Guinea and its commerce and trade as imports are getting delayed. How much kina depreciation will be needed to eradicate the foreign exchange shortage and how would you resolve this affects issue?

MR. SRINIVASAN: Thank you. Maybe I'll answer part of the question and give it to Jay. So in terms of China slowdown, China is clearly a big player in the Asia Pacific region. And one statistics I like to point out to everybody is intra-regional trade in Asia is more than 50 percent. And a large part of that is a role played by China. So if China slows, it's going to affect all countries in the region. And some of the estimates we have done shows that for a one percentage point decline in China's growth, on average, there's a decline of 0.3 percentage points of growth over the medium term in other countries. Now, clearly this is an average, which means that countries which are more tightly linked to China will see a larger growth decline if China slows down. Your second question was on PNG. I think we are satisfied with the reform efforts taken by the government, which led us to complete the first staff level agreement. And now the next stage is for the board to consider the first review.

MR. PEIRIS : Maybe I can add on the talk, I mean, just on the effects and the Montreal policy. You know, the Bank of Papua New Guinea has modernized its monetary policy operations and has allowed gradual depreciation and that's a part of the program. And things are on track. As Krishna mentioned, most of the conditions have been met and the program, the performance has been very good. So we're expecting a conclusion, and they have taken measures to try to address the effect shortages as well. And then on the Independent Commission Anticorruption, the Commissioner, Deputy Commissioner has been sworn in, and we are looking forward to progress on that. For now, everything seems to be on track. Thank you.

MS. VU: Since we're on China, we have a question from Kelly, China Daily on Webex. The question goes: China is holding the third Belt and Road Forum. How do you evaluate the contribution of this initiative to the financial connectivity and security in Asia Pacific? Any suggestions do you have for this initiative to be more sustainable and generate more benefits for participating countries?

MR. SRINIVASAN: Thank you. Can I have Thomas answer the question, please?

MR. HELBLING: Okay, thank you and good morning. So, on the Belt on the Road Initiative, as we have mentioned before, this is a big initiative as a regional initiative globally, but it's mainly regional, has the potential to strengthen trade, connectivity, and investment. And so, given its size and magnitude, it has the potential, and has already done so in some cases, to strengthen investment and improve connectivity and linkages. As we also have mentioned, initiatives of this size also need to be operationalized properly to manage risks and that entails a number of issues. First, sound project management to make sure that the projects are economically efficient and that the benefits yield are yielded to the country. Second, proper procurement and governance procedures and standards. And thirdly, also encouraging local and private sector participation. Thank you.

MS. VU: The gentlemen here.

QUESTIONER: Thank you. My name is Emmanuel and I am from Indonesia. My question is regarding your outlook with the new conditions of the conflict in Israel and Hamas. Would you give us maybe it will impact your outlook in the future in the region of Asia and Asia Pacific? And specifically I want to ask you about Indonesian. What is your outlook of Indonesia regarding of the conflict of Hamas and Israel basically in terms of trade, energy prices and financial market? And you have maybe any recommendation measures to mitigate the impact and also maybe you have maybe strategies and reform that the Asian nation should do and especially Indonesian should do to mitigate the impact of this conflict and to make sure that the sustainable development in the region is still in line with your outlook. I think that's all, thank you.

MR. SRINIVASAN: Thank you for the question. I think it's a bit too early to assess the economic impact of the recent conflict. I will begin by saying that we are very saddened by the loss of lives, which is very tragic. Going beyond this, I think it would be very hard for us to say what would impact right now. What we could say is there could be an impact on energy prices, oil prices, and again the impact would be country specific. What we have done at the global level to say that if there is a 10 percent increase in oil prices, what does it do to global output, what does it do to inflation? And there we find that for a 10 percent increase in oil prices, global output the next year comes down by 0.15 percent and inflation goes up by 0.4 percentage points. So that's a global number. The impact is going to vary depending upon whether an oil importer or oil exporter. But again, that's where we have to see the impact across Asia will vary.

In terms of reforms, I think Indonesia has done very well in terms we have growth at this year at 5 percent, we have growth at 5 percent next year. We have inflation coming down. It's come down quite sharply. The Central Bank was proactive in addressing the inflation challenge and so inflation coming down. So the macro fundamentals look pretty good. But going beyond the near term, for you to have to reap the best in terms of your maximizing your potential, it's important to embark on structural reforms including improving the business environment, labor laws, infrastructure, and so on and so forth. Those are the areas which over the medium term will give you a lot in terms of return for the investment you make now.

QUESTIONER: Thank you. Hi, good morning. I'm Niam from Bernama, Malaysia. I have two parts of question here. First is about the GDP growth of Malaysia. In the report it shows that the GDP is going to increase 4.3 percent next year compared to 4 percent that you expected this year. May I know the main drivers of this growth? And then secondly, it's about the inflation. And in the report, you mentioned that the core inflation in certain emerging countries, including Malaysia, is expected to moderate next year. But Malaysia, we are going to increase our sales tax next year from 6 percent to 8 percent. And then how do you expect this will dragging down the core inflation? And then with that, do you expect our central bank to cut the OPR next year? And what's your expectation of the ringgit currency compared with the US dollar next year? Would it be strengthening or remain low? Thank you.

MR. SRINIVASAN: All very good questions. I'll ask Jay to answer.

MR. PEIRIS: Thank you. I mean, as you said, on growth next year, we are expecting a gradual pickup from four to 4.3. Malaysia is a very open economy, particularly including on electronic and tech cycle. We are expecting export demand, global economy, and export demand to gradually pick up. It's still pretty low. Exports are quite weak, particularly the tech cycle. We expect probably to gradually pick up through next year. So that will help. That partly explain the trajectory of a higher growth we have in Malaysia towards the next year from this year.

On inflation front, yes, it's gradually coming down, but there are risks, including from the subsidy reforms. We think our recommendation from the last Article IV on Malaysia has been that monetary policy should be restricted enough to bring inflation down towards kind of 2-3 percent or target range over the medium term. And at the moment, we kind of see interest rates have been raised and right now it seems like inflation is coming down gradually. We have this change in the subsidiary form which we support. It's kind of a one off event. As long as inflation expectations are fairly well anchored, which seems to be the case, you don't think that necessarily requires additional impact or additional measures unless you see these second round effects on inflation, but which we at the moment seem to be well anchored. So in that sense, we think the current restrictive stance, maintaining a restrictive stance should help bring down inflation and fine tuning of monetary policy. We don't make strong judgments on where the exchange rate will go or fine tuning. It will have to be data dependent, particularly next year on how inflation comes down, but also the impact of subsidiary reform and also the external environment. Interest rate differentials are driving exchange rates and its market determined, as Malaysia has a flexible exchange rate. So monetary and exchange policy should be market flexible and respond to the data coming through. Thank you.

QUESTIONER: So my name is Naidu, I'm from Fiji. I have two questions. First one is what is the economic outlook for Fiji and what global implications mean for us? Because we have noted an inflation rate increased from August to September. In August it was 1.3, but in September it's 2.5. Thank you.

MR. SRINIVASAN: A very good question. So Fiji is one country where if you look at what we call as losses from the multiple shocks, output has gone back to 2019 level, so the losses have been recouped. So growth with this year, we have it at 7.5 percent, and for next year it is at 3.9 percent. And this partly reflects the fact there's been a sharp rebound in tourism arrivals, so there's already a pickup last year, and now we are back to 2019 levels. So that in a large extent, explains why growth is so strong in Fiji. We had very good meetings with the delegation in Marrakech and where they clearly have a reform agenda, which is preparing Fiji for the years to come in terms of a sound macro fiscal position, and so that's all very promising. In terms of inflation, again, it needs to be kept in check. So that, as I said, our advice to countries in the region is to keep the monetary tightening until inflation comes back to target, right? And so that's important because you want to address the inflation problem head on, so that it'll become go out of control down the road. So that's important.

QUESTIONER: Good morning. I'm Lawrence Agcaoili from Philippine Star. My question is for Jay. Jay, with the lower gross projections for this year and next year, what do you think? The Philippines is still the fastest growing economy in the region? What do you think is the country doing right and what are the advantages for its peers? And my second question is regarding monetary policy. The BSP Governor Eli Remolona already signaled a hike in the next meeting and inflation is coming up again. Do you think inflation would still go back to the target this year? And how would this affect monetary policy and economic growth moving forward?

MR. PEIRIS: Yeah, thank you for the question. So it's true that Philippines was growing at 6 plus, and now this year we're expecting a slowdown to 5.3, but go back to 6 percent next year. This year's growth is a bit weaker for many factors, including kind of initially underspending in the government, of course, the impact of monetary tightening and the weak external global environment, which is a very similar story to many ASEAN countries. For next year, we are expecting a pickup because service exports are quite doing quite well. And as I said, the tech cycle will turn, so electronic exports also get a boost next year, and the public spending will also accelerate. So in that sense, the strong macro -- BSP acted very decisively in raising rates when inflation went up. Fiscal consolidation is on track, supporting monetary policy. So prudent macro policy in the Philippines has been one hallmark of the good economic performance.

Then also the opening up the economy to foreign investment has been an important aspect. FDI has picked up. Right now, globally, FDI is weak, but opening up to FDI greater investment, the prudent macro policies, and also the fiscal focusing more on infrastructure, 5 percent of GDP in public investment and PPPs, is one reason I think Philippines has done well, and that hopefully all is well going forward.

On the monetary policy, what we mentioned in the Article IV a few weeks ago was that there's upside risk to inflation. I think the BSP recognizes it. What we said is that the current restrictive monetary stance should help bring down inflation by Q1 next year. We didn't think it would come to within target this year and there's upside risk. So what we said is keep the course on monetary policy tightening and it should bring inflation down. But if upside risks materialize, you may need to raise interest rates more. And I think that's where roughly the central bank is at the moment. Thank you.

MS. VU: Let me turn to Webex with two questions on Webex now from Gee Wan Kim in Korea. A few days ago, IMF commended Korea's fiscal rule while recommending South Korea keep the national debt low? What is the commendable aspect of Korea's fiscal rule? What would be the ideal level of national and household debt for South Korea? And we have a question on Cambodia. From Sovan Nguon, Xinhua Phnom Penh bureau. What is the IMF's growth revision for Cambodia in 2023 and why? If the Regional Comprehensive Economic Partnership (RCEP) Agreement has any impacts on Cambodia's growth this year or next? Thank you.

MR. SRINIVASAN: I think Thomas answered the question on Korea, Jay on Cambodia.

MR. HELBLING: Okay, thank you. On fiscal policy in Korea, let me clarify. So the praise was for the conduct and the fiscal policy intentions in Korea. There are two aspects to that. One is with our general recommendation on fiscal policy, that now, after the exceptional fiscal policy support during the pandemic, that now it's the time to unwind these measures, reduce deficits and rebuild buffers. Not the least, also in consideration of higher borrowing costs. So Korea, which has reduced deficits after the pandemic and is now committed to keep deficits low going forward, is for us an example for this fiscal prudence and the appropriate fiscal policy conduct in these circumstances. One background to that is also that the government intends to keep debt low, not the least, also in view of the increase in the expected fiscal burden from population aging.

In terms of desirable debt levels for fiscal, I think we think that current debt levels in Korea are broadly appropriate and should be maintained. As for household debt, we generally don't have specific household debt levels or ratios that we recommend. I think the key there is with high household debt, as in Korea, the household debt in total is about on average 160 percent of disposable income, which is quite high in the high range among the OECD economies. And I think there our key point is that macro prudential policies should be set so that the risks from higher household debts can be managed.

That entails a number of aspects. One is to keep the risks manageable for households and ensure that asset quality, so in particular mortgages remain serviceable. So do stress testing when mortgages are extended, make sure that also under adverse scenarios for incomes or other unexpected expenses at the household level, that debt service is still guaranteed under reasonable circumstances. The other is also then to contain risks at the lender, that lender ensure proper lending standards when extending debt or borrow loans to households, and also making sure that new products or new financial intermediaries are properly regulated. That's the main concern in Korea. Also, globally at the moment are non-bank financial institutions, which are not always as tightly or as comprehensively regulated when it comes to their liquidity buffers or capital adequacy buffers or lending standards, and their risk management procedures. Thank you.

MR. PEIRIS: On Cambodia, we have 5.6 percent growth this year and 6.1 next year, 2024, it's only 0.2 and 0.1 less than what we had before. And like the ASEAN theme, it's really revised down only because of weaker external demand. So we do expect things to improve. And Cambodia is very exposed to the US and European market and demand there is weaker also. China exposure is also significant, and we think that also plays a role in the slightly weaker growth, but it's still very solid growth. RCEP in that sense does provide a diversification. We've seen integration in Cambodia with ASEAN trading partners increase rather than decreasing some of the exposure to US, Europe, which is very high. So in that sense, it's helping the Cambodian economy diversify. But some of the commitments on RCEP and the impacts will feel, through the medium to long term, these agreements. A lot of things kick in through time. So I think the benefits would really come in through the long term, including by having a business environment that attracts investment and FDI in all broader sectors. So I think in that sense, it's well positioned.

MS. VU: Thank you. We will go back to the room. The Lady here please.

QUESTIONER: Good morning, sir. I'm from China Central Television. My question is regarding to the outlook. The outlook mentioned that a comprehensive set of reforms in China would boost medium term growth prospects, especially for smaller and more open economies. So could you explain further what are the comprehensive reform in China and how will it boost the medium term growth prospect? Thank you.

MR. SRINIVASAN: So let me answer one part and give it to Thomas. So in China, there are two parts. One is, of course, what do we see in the near term and going beyond that? So in the near term, as you said, there are a lot of headwinds coming from China in terms of what's happening in the real estate sector. So there what we have underscored is a need for a comprehensive strategy to address problems in the real estate sector, which involves basically making sure that all the pre-financed houses are built. There's a problem with the developers, which needs to be sorted out. So there's a strategy to how do you restructure the developers. That's important. So until that's done, it's going to affect confidence, because right now you see any indicator on real estate, whether it's stark investment and sales, all is coming down, everything is coming down. So you need to have a strategy to address that. And that will also help revive confidence, consumer confidence, and boost consumption.

But going beyond that, in China, we have revised on our growth forecast for over the medium term, it's at 3.4 percent in 2028. And that's predicated on two aspects, mainly the population, which is aging, and productivity, which is declining. In terms of how do you address that? You could have structural reforms in terms of allowing competitive neutrality between state-owned enterprises and private enterprises, addressing the aging population, labor participation through pension reform, investing in education and technology, and innovation. All this with China. Innovation by China is doing a lot. So those are kind of reforms which you want to do. And we also indicated that if you do those reforms, there is an upside to growth. You want to add to that?

MR. HELBLING: Maybe just to add that. I think in terms of structural reforms, important reforms have already been mentioned by Krishna, in particular, competitive neutrality and the level playing field between the private sector and the mixed or state-owned sector. I think what I would like to add is on the demand side, I think is also a rebalancing of the economy towards consumption. At the moment, the economy is very investment heavy. Some of that investment may be less effective or efficient at the margin and creating more scope for services and consumption will be important for balanced and high-quality growth going forward. A key reform there is strengthening the social safety net. Thank you.

MS. VU: There's another question on China on Webex. Can you go to that one? From Lan Xu, China Daily. Do you think China faces deflationary pressures or not? As the country's GDP deflator could be negative for second consecutive quarters? What's your outlook for China's inflation this year and next?

MR. HELBLING: So, just as we have mentioned before, so we see downside risks to growth, as mentioned. But we would highlight our inflation forecast is for 0.9 percent headline inflation by the end of the year and then inflation moving to 2 percent. In terms of the headline inflation, which is the right inflation metric to think about deflation, about price levels, we don't see deflation in the baseline. In fact, we see inflation normalizing as the Chinese economy continues to recover after the pandemic and economic slack slowly disappears. Thank you.

QUESTIONER: Good morning, sir. My name is Bounheng, I'm from Laos. I have two questions. The first one from IMF Economic Outlook for Asia and Pacific 2023. The fuel price are expected to increase in many countries. How the global economic challenge is going to impact on ASEAN economy and economic of low income countries such as Laos? Because Laos totally relies on import of fuels from other countries. And the second question is IMF maintains the economic growth forecast for Laos at 4 percent next year, I'm just curious to understand why you maintain this growth rate? And in your opinion, what will be the key factor driving economic growth in Laos?

MR. SRINIVASAN: Okay, in terms of your first question, impact of oil prices, as I mentioned a number before, we haven't done analysis country by country because it's too early for that. But what we have done is analysis at the global level, and a 10 percent increase in oil prices leads to a 0.15 percent decline in global output the following year and inflation going up by 0.4 percentage points. Now, clearly, with Laos being an oil importer, the impact is likely to be larger. So you can use that number and say how benchmark that to see how much more Lao is going to be affected, but it is going to be affected quite significantly. In terms of the forecast projection, I think you can see an uptick in both domestic demand and a pickup in tourism, which I think is huge in Laos. So I think that underpins a lot of our factors contributing to the growth forecast. Do you want to add anything more to it, Jay?

MR. PEIRIS: Not really, and Alasdair is there. He is a mission chief, so maybe he could talk to Alasdair?

MR. SRINIVASAN: Yeah, you could have bilateral discussion to get more granular understanding of what could explain a growth forecast. You could talk to our Mission Chief.

QUESTIONER: Yes, good morning. I’m Kang Sothear from Khmer Times newspaper in Cambodia, and I have one question. How would the downside scenario of a deeper or prolonged housing market correction in China intel less outbound tourism from China? And how there being less outbound tourism from China affects sectors in Asia and especially Cambodia. Thank you.

QUESITONER: Hi, I'm Mala from the Standard Thailand. So I have questions about Thailand. The first one is the IMF has lowered Thailand GDP forecast for this year and next year. So what are the specific indicators or sectors that are contributing to the lower growth expectation for Thailand? And are there any specific risk factor that could further impact Thailand economic growth in the coming years? Next year the new government of Thailand has a plan to spend a large budget on boosting consumption. So would it help?

MR. PEIRIS: I'll just address the Cambodia question because it was partly already answered, but just to say on Cambodia, the recovery in tourism is quite solid. Of course, it's true that tourists from China hasn't at all come back to where the pre pandemic level is, but with Cambodia, tourism has gone back to close to levels overall because especially from diversification, including from ASEAN tourists. So if there is further catch up in Chinese tourists coming to Cambodia, it would be upside risk, actually. So things have recovered quite strongly and tourism is, if anything, an upside risk to Cambodia. If the Chinese tourists come back to anything close to pre pandemic levels.

On the real estate, I don't think there's a direct link necessarily, of course, more tourists coming in and more Chinese participation in Cambodia will hold up the real estate sector better. I think one factor which I think is also important for real estate is often the cost of borrowing. Global interest rates are going to be higher for longer, including Asia's cost of borrowing. So that is something to watch and will be kind of a drag on real estate. Although, of course, China's real estate is something to watch. On Thailand, I think we revised down our growth to 2.7 from 3.4 this year. That's mainly because Q2 growth was quite weak, right? Q2 growth was quite weak. It was reflecting that trajectory. But we are expecting a pickup next year to 3.2 percent. Also like the Asian countries, in addition to the weaker growth, was really because of weaker external demand, right?

But then we have tourism picking up. It's not again to pre pandemic levels, particularly from China, but it's picking up, it is supporting the service sector. So economies expect to recover next year and have kind of a medium term trajectory of about 3 percent growth. I think on Thailand, the key issues are the aging population, low productivity growth, kind of reforms to unleash those sectors, and higher productivity. We expect at the moment inflation is manageable. So the policy mix will be important going forward for next year. And there's a lot of uncertainty globally and locally. But the Article IV mission is, I think, in Thailand and they're going to be revising their policy mix and the discussions they're going to reflect on the discussions they've had with authorities. So for the detailed policy mix and how the monetary and fiscal would move forward together next year, I would refer you to the Article IV which I think they'll have a press conference in the next few days. Thank you.

MS. VU: I think we have time for maybe one round of questions.

QUESTIONER: All right. Hi, I'm Ovais from the Straits Times. Just on the medium-term outlook, both for global and Asia, you see it low in multiple years. So apart from the fact that of course interest rates are higher for longer, China is slow and stuff like that, do you see any other secular long term structural changes going on through the world that are also having an effect on the medium-term outlook?

QUESTIONER: Thank you. I'm Le Duong from Vietnam News Agency and my question related to Vietnam’s economy. The first question is Vietnam set target of 6.5 percent for GDP growth in 2023 and the data for the three quarters show that Vietnam seems impossible to meet the target. And also in IMF GDP forecast for Vietnam this year is 4.7. So can you share the view on the reason why Vietnam won't be able to meet its target? And the second question is IMF seems to be optimistic about Vietnam GDP growth for 2024 and 2025. Can you elaborate on the ground for this optimist forecast. Thank you.

MR. HELBLING: So on medium term growth, as you know, there have been two concerns in the room for quite a while, and these concerns predate the pandemic. One is population aging in many countries and the impact it has on labor force growth. That is one factor behind the decline in projected medium-term growth. The second was quite a long-term decline in productivity that has been observed, and particularly also over the past the decade prior to the pandemic. It's a trend that has continued. There have been various recommendations in that some of them depend on country circumstances, but in general, I think accommodative business environment, sufficiently flexible labor market, but with appropriate safety nets. And then thirdly in many countries, and that's also something that ties the discussion then to our Regional Economic Outlook and also to the World Economic Outlook. A concern is really underinvestment in many countries. A sharp slowing in investment, if you look at what is sometimes called economic scarring, is now what we see that investment is considerably lower going forward in terms of our projections relative to what is expected. Investment, to the extent that it has new technology, new processes embedded, can be an important source of productivity gain. And so we always highlight the need to strengthen investment, have deepened financial markets, have the business environment that facilitates investment, and invest in human capital so that the labor force can handle the new technology and can implement innovation. Thank you.

MR. SRINIVASAN: And you asked for the region. I think in region, I think you can see that China slowing over the medium term is a big factor. So we have it at 3.4 percent in 2028, again led by factors which Thomas mentioned, declining productivity, population aging, and the lack of rebalancing of the economy. So all these seeking factors can help explain why China's medium term growth is being marked down. Let's not forget that this does not incorporate any of the risks we talked about in terms of d-risking, the de-risking of the fragmentation, that's not there in our baseline. If those risks manifest, then your medium term outlook looks that much more gray.

MR. HELBLING: Yeah, maybe just to end. On Vietnam, so as you mentioned, growth has been weaker, right? I mean, the first three quarters was averaged 4.2. So reaching the growth targets is quite difficult. We are expecting growth to reach 4.7 this year, so a pickup through the Q4, it is quite a stronger pickup. I mean, exports were very weak in the first half. That was explaining some. But we are seeing some gradual green shoots in exports recovering, including electronics. So that should we think the economy is on a recovery path. Of course it's weaker than before.

On the medium term, you ask, are we being very optimistic on it recovering back to where it was? I think you got to remember that pre pandemic the decade before the pre pandemic Vietnam was growing at 6.6 percent. So there are some issues with exports right now and also the real estate and the financial sector. But we are seeing a gradual recovery of the stress in the real estate and corporate bond market easing. The view is that with the reforms being undertaken, some of those short-term headwinds will be overcome. And in the medium term, the Vietnam strong kind of trajectory based on integration of value chains, FDI, those fundamentals remain fairly strong. So if we overcome some of these macro imbalances right now, we would go back very close to the pre pandemic trajectory and that's the idea.

MS. VU: Thank you, Krishna, Thomas, and Jay. We have come to the conclusion of our press briefing today. And please note that the recording and the transcript of this briefing will be posted on imf.org. Thank you very much for joining us, both in Singapore and virtually, and we look forward to seeing you at our future briefings. Have a good day. Bye bye.

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