Opening remarks by Krishna Srinivasan, Asia and Pacific Department Director at the Press Conference on the Regional Economic Outlook for Asia and Pacific

IMF News, April 18, 2024

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Published: April 18, 2024

Growth outcomes and projections

Growth for the region reached 5.0 percent in 2023—much stronger than the growth of 3.9 percent in 2022—and is 0.4 percentage points higher than what we had projected in the October 2023 Regional Economic Outlook.
Growth surprised on the upside in the second half of 2023, as robust domestic demand fueled activity especially in emerging Asian economies. Malaysia, the Philippines, Vietnam, and, most notably, India recorded sizeable positive growth surprises.
We now project the region to grow by 4.5 percent in 2024—an upward revision of 0.3 percentage points relative to October.
With this, Asia would contribute about 60 percent of global growth.
The region is projected to grow by 4.3 percent in 2025.

Growth drivers by country group

China and India:
- Investment is expected to contribute disproportionately to growth—much of it public, especially in India.
Emerging Asia outside China and India:
- Robust private consumption will remain the main growth engine.
Some advanced economies (example: Korea):
- Expect a positive impulse from exports—driven in part by strong global demand for high-end semiconductors.
- Domestic demand would strengthen only gradually.

Inflation dynamics and policy implications

Asia is ahead of the curve on disinflation relative to most other regions.
Three groups have emerged during the disinflation process:
- In one group of countries—Korea, Australia, New Zealand—inflation is still above target, boosted by persistent price pressures from
- In a second group—most Asian emerging markets and Japan—headline and core inflation are
- Finally, in countries like China and Thailand, inflation is low. This owes to both falling commodity prices and weak demand that puts downward pressure on core prices.
Going forward, we expect that inflation will converge to central bank targets.
Policy recommendation on monetary stance:
- A differentiated policy approach is required: a tighter-for-longer stance in economies where inflation is elevated, and accommodative macro-policies in economies with sizeable slack.
US monetary policy effects:
- IMF staff analysis shows that US interest rates have a strong and immediate impact on Asian financial conditions and exchange rates.
- Expectations about Fed easing have fluctuated in recent months, driven by factors that are unrelated to Asian price stability needs.
- Recommendation: Asian central banks should focus on domestic inflation, and avoid making their policy decisions overly dependent on anticipated moves by the Federal Reserve. If central banks follow the Fed too closely, they could undermine price stability in their own countries.

China: mixed signals and regional implications

Recent data have been mixed: GDP for the first quarter surprised on the upside, and March readings for the manufacturing and services PMI were quite strong, while the property sector remains subdued.
Amid weak domestic demand, inflation turned negative in late 2023 and early 2024 although it has returned to positive territory in February.
A more protracted slowdown in China would be bad news for the region for several reasons:
- Chinese export prices fell in the second half of 2023. This not only puts pressure on the profit margins of China’s competitors, but IMF staff analysis shows that their export volumes can also suffer—especially for countries that produce similar goods to China, such as Vietnam or Korea.
Upside from China:
- Robust policy support in China can be good news for the region.
- The nature of support matters:
- Measures aimed at addressing stresses in China’s property sector can restore consumer confidence and boost domestic demand.
- Policies that boost China’s supply capacity would reinforce deflationary pressures and could provoke frictions.

Trade frictions, shipping disruptions, and regional vulnerabilities

Global conflict can undermine trade.
Attacks on cargo ships in the Red Sea have forced a re-routing of vessels between Asia and Europe, driving up container prices.
Shipping disruptions are particularly detrimental for Pacific Island Countries, which both depend heavily on imports and are poorly connected to global shipping networks.
Frictions reinforce the impact of trade restrictions that continue to be implemented at a rapid pace, both in Asia and elsewhere.
Geoeconomic fragmentation remains a large risk for a region that has benefited greatly from trade integration.

Fiscal policy guidance and debt outlook

Recommendation: Governments should focus on consolidation, to curb the rise in public debt and rebuild fiscal buffers.
Our forecasts show that on current fiscal plans, debt ratios would stabilize for most economies, provided governments underpin these plans with concrete policies and follow through on them.
Even if debt ratios stabilize under current plans, debt would remain significantly higher than before the pandemic.
To reduce debt levels and curtail debt service costs, governments need to:
- Collect more revenue.
- Streamline expenditure.
Fiscal space freed by lower debt service costs could be redirected to development needs, social safety nets, and climate mitigation and adaptation.

Administrative note

The Regional Economic Outlook will be launched on April 30 in Singapore.

Source: Opening remarks by Krishna Srinivasan, Asia and Pacific Department Director at the Press Conference on the Regional Economic Outlook for Asia and Pacific (Washington, DC, April 18, 2024).