## Asia Growth Slows on Commodities, Covid and Rising Interest Rates _IMF Blog, April 25, 2022_ ## Source details **Canonical URL:** [Asia Growth Slows on Commodities, Covid and Rising Interest Rates](https://www.imf.org/en/blogs/articles/2022/04/25/blog-asia-growth-slows-on-commodities-covid-and-rising-interest-rates) ## Other formats - [Markdown version](/en/blogs/articles/2022/04/25/blog-asia-growth-slows-on-commodities-covid-and-rising-interest-rates/index.md) - [Structured JSON version](/en/blogs/articles/2022/04/25/blog-asia-growth-slows-on-commodities-covid-and-rising-interest-rates/index.json) - [Bundle manifest](/en/blogs/articles/2022/04/25/blog-asia-growth-slows-on-commodities-covid-and-rising-interest-rates/bundle-manifest.json) ## Bibliographic details - Authors: Anne-Marie Gulde-Wolf, Shanaka J Peiris - Published: April 25, 2022 --- ### Regional growth outlook and inflation - Regional gross domestic product will expand by 4.9 percent, 0.5 percentage points less than we forecast in January and slower than last year’s 6.5 percent growth rate. - Inflation is estimated to rise faster in many countries, though from relatively low levels. - Our latest World Economic Outlook lowered the 2022 global growth estimate by 0.8 percentage point to 3.6 percent. - The World Economic Outlook reduction reflects a 1.1 percentage point cut for the euro area, now seen expanding 2.8 percent. - We project growth in China to slow to 4.4 percent this year. ### Main headwinds and transmission channels - War in Ukraine - Poses the biggest challenge for economic growth. - Advanced economies in the region hurt most by reduced demand from Europe. - Emerging markets affected via higher global commodity prices. - Global commodity price shocks - Most of Asia’s emerging and developing economies are net importers of oil, gas, and metals, making them vulnerable to rising global commodity prices. - Deterioration in terms of trade will likely reduce growth, weaken currencies, and worsen current-account balances. - High food and fuel costs add to inflation pressures, especially in lower-income countries where they constitute a large share of consumer spending. - Covid-19 developments - Coronavirus infections in most of Asia have retreated from omicron peaks and mobility indicators are approaching pre-pandemic levels. - China is a notable exception: lockdowns in Shanghai and elsewhere idle a wide range of activity and threaten further disruptions to regional and global supply chains. - Tightening global financial conditions - Government bond yields in major Asian economies have begun rising as the Federal Reserve starts to lift US interest rates. - Forecasts assume continued tightening abroad and rising inflation at home will lead many Asian central banks to hike rates, placing a drag on investment. - Longer-term risks - Intensification of the war in Ukraine could further increase food and energy prices, stressing vulnerable households and potentially causing social unrest. - A materially faster or larger tightening of US monetary policy than markets expect could cause disruptive capital outflows; downside risk is mitigated where countries have strong buffers and amplified where high debt exists. - A greater slowdown in China due to broader lockdowns or continued weakness in the real estate sector would have large implications for the region. - Potential fragmentation of supply chains and added geopolitical tensions are longer-term risks to a region that has benefited from globalization. ### Policy trade-offs and recommended responses - Overarching principle - Strong and coordinated policy responses tailored to country-specific circumstances are required to address pressures on growth and manage short-term trade-offs. - Protect the most vulnerable from rising fuel and food costs - Examples of targeted and temporary protections: a Philippine cash-transfer program and New Zealand’s reduction in public transport fares. - Social unrest has already flared where these pressures exacerbate vulnerabilities, such as Sri Lanka. - Anchor medium-term fiscal policy frameworks to ensure debt sustainability - With output gaps still large in many countries, withdrawal of fiscal stimulus must be well calibrated to support the pandemic recovery. - Some countries with fiscal space, including China and Japan, responded to recent headwinds with fiscal measures to support recovery this year. - Countries most vulnerable to debt distress will need consolidation sooner, and some may benefit from debt treatment under the Common Framework. - Monetary and macroprudential policy - Tighten monetary policy where inflation is rising faster, such as Singapore, or above central-bank targets, as in Korea. - Use macroprudential policies to limit financial stability risks amid high household debt levels, including addressing significant increases in housing prices in some countries. - Structural reforms to boost long-term growth - Enact economic reforms, particularly in Asia’s emerging economies, to mitigate scarring from the pandemic. - Overhauls needed in areas that boost productivity, such as non-tariff barriers and product and labor markets. - Education reforms are essential to address long-term effects of school closures, which were substantial in South Asia and low-income and developing countries. *IMF Blog: Asia Growth Slows on Commodities, Covid and Rising Interest Rates — April 25, 2022* --- ## References - [Russia’s invasion of Ukraine](https://www.imf.org/en/Topics/IMF-and-Ukraine) - [https://www.imf.org/wp-content/uploads/2022/04/APD-REO-Chart-1.jpg](https://www.imf.org/wp-content/uploads/2022/04/APD-REO-Chart-1.jpg) - [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2022/04/19/world-economic-outlook-april-2022) - [especially in lower-income countries](https://blogs.imf.org/2022/03/16/war-fueled-surge-in-food-prices-to-hit-poorer-nations-hardest/) - [Common Framework](https://blogs.imf.org/2021/12/02/the-g20-common-framework-for-debt-treatments-must-be-stepped-up/) - [long-term effects of school closures](https://blogs.imf.org/2022/02/03/pandemic-scars-may-be-twice-as-deep-for-students-in-developing-countries/) - [https://www.imf.org/wp-content/uploads/2022/04/APD-REO-Table-Final.jpg](https://www.imf.org/wp-content/uploads/2022/04/APD-REO-Table-Final.jpg) _Source: https://www.imf.org/en/blogs/articles/2022/04/25/blog-asia-growth-slows-on-commodities-covid-and-rising-interest-rates_