Asia’s Prospects for A Soft Landing Have Improved

IMF News, January 31, 2024

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• Published: January 31, 2024

Global developments

• Global growth projections:
  • 3.1 percent growth for 2024—the same growth rate as in 2023.
  • 3.2 percent projected for 2025.
  • Historical (2000-2019) average for global growth: 3.8 percent.
• Global inflation projections:
  • 6.8 percent in 2023.
  • 5.8 percent in 2024.
  • 4.4 percent in 2025.
• Drivers supporting 2023 activity:
  • Stronger private and government spending despite tight monetary conditions.
  • Supply-side supports: higher labor force participation, unwinding of supply chain bottlenecks, and lower energy prices.
• Note: Current projections are somewhat better than the October 2023 World Economic Outlook but remain below the 2000-2019 average.

Asia—growth outlook and recent revisions

• Regional growth estimates and revisions:
  • 2023 estimated growth: 4.7 percent (up from 4.6 percent projection in October).
  • 2024 upgraded regional growth forecast: 4.5 percent (from 4.2 percent in October).
  • 2025 projected regional growth: 4.3 percent, reflecting largely China’s slowdown.
• Contributors to upward revisions:
  • China and India account for most of the upward revision for 2023.
  • China: higher spending on disaster reconstruction and resilience projects.
  • India: strong domestic demand underpinning increased growth estimate.
  • More supportive external environment, notably robust growth in the United States.
  • Pick-up in demand for technology—computers, electronics, and optical products—benefiting Korea and Singapore.
  • Sizeable policy stimulus announced by countries like China and Thailand.
• Asia’s share of global growth:
  • Asia is on-track to deliver again two-thirds to global growth in 2024, as it did in 2023.

Country divergences (selected)

• Japan:
  • Growth expected to slow from about 2 percent in 2023 to about 1 percent in 2024.
  • One-off factors in 2023 that fade: a depreciated yen, strong tourism, and a recovery in business investment.
• India:
  • Growth expected to remain strong at 6.5 percent in both 2024 and 2025.
• China:
  • Growth slowdown is a major factor in the regional deceleration projected for 2025.

Inflation, monetary policy, and exchange rates in Asia

• Regional inflation trends:
  • Average Asian inflation fell from 3.8 percent in 2022 to 2.6 percent in 2023.
  • Many regional central banks are on course to reach their inflation targets in 2024.
  • Scope for monetary easing may emerge later in the year if policymakers hold steady until inflation is firmly re-anchored.
• Country-specific inflation notes:
  • China: inflation was 0.3 percent in 2023, raising deflation concerns; weakness mainly from lower food and energy prices and subdued core inflation. Inflation is expected to recover gradually through 2025.
  • Japan: inflation 3.2 percent in 2023; expected to slow but remain above the 2 percent inflation target until 2025.
• Interest rate and exchange rate dynamics:
  • In the second half of 2023, the U.S. Federal Funds rate exceeded the average policy rate in Emerging Asia, triggering depreciation pressures on Asian currencies in the fall of 2023.
  • Those pressures have abated as the Federal Reserve signaled interest rate cuts going forward.
  • Risk remains that divergent monetary stances between the United States and Asia could trigger sharp exchange rate movements; central banks should focus on price stability and avoid being distracted by temporary turbulence.

Key risks and scenarios

• Downside risks:
  • A larger and more drawn-out correction in China’s property sector could curtail domestic demand, especially if accompanied by stress in local government finances, and would reduce demand for the region’s exporters.
  • Tighter-than-expected financial conditions in the United States or Asia could put pressure on heavily indebted industries and economies.
  • Rising risks of geopolitical fragmentation that increase the costs and inefficiencies of supply chains and raise shipping costs.
• Upside scenario:
  • Stronger-than-expected policy support in China could boost domestic demand and generate positive spillovers for the region.

Policy priorities for Asia

• Fiscal policy:
  • Fiscal consolidation is key to restoring buffers and safeguarding debt sustainability.
  • 2023 budgetary balances improved somewhat in Asia, but consolidation was slower than anticipated—additional belt-tightening will be needed.
• Financial sector:
  • Strong financial supervision and systemic risk monitoring to safeguard against potential financial sector vulnerabilities.
• Structural policies:
  • Structural reforms to boost productivity and mitigate challenges from global de-risking.
  • Accelerate the green transition as essential for sustainable growth.

IMF cooperation with Japan

• Areas of cooperation:
  • Close work through the IMF’s regional office in Tokyo.
  • Acknowledgement of Japan’s support for IMF initiatives.
• Examples of Japan’s contributions (high-level):
  • Support for meeting IMF’s fundraising targets for the Poverty Reduction and Growth Trust (PRGT) through loan resources and a subsidy contribution.
  • Contributions in 2022-23 to the Resilience and Sustainability Trust (RST).
  • Raised pledge regarding SDR channeling, strengthening IMF’s ability to support low-income and vulnerable member countries.
• Japan’s role:
  • An important thought leader in discussions of SDR channeling and a crucial and reliable partner of the Fund in its support for low-income countries.

Remarks by Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, Press Conference on the Regional Economic Outlook, Tokyo, January 31, 2024.

References

• Transcript of the Press Briefing, Tokyo, January 31, 2024
• Press Briefing by Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department on the Latest Economic Outlook for the Region, Tokyo, January 31, 2024
• People's Republic of China and the IMF
• India and the IMF
• Japan and the IMF
• United States and the IMF
• Speeches
• PRESS CENTER
• https://www.imf.org/en/home