## Asia’s Easing Economic Headwinds Make Way for Stronger Recovery

_IMF Blog, February 21, 2023_

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**Canonical URL:** [Asia’s Easing Economic Headwinds Make Way for Stronger Recovery](https://www.imf.org/en/blogs/articles/2023/02/20/asias-easing-economic-headwinds-make-way-for-stronger-recovery)

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## Bibliographic details
- Authors: Krishna Srinivasan, Thomas Helbling, Shanaka J Peiris
- Published: February 21, 2023

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### Growth outlook and regional dynamics
- Growth set to accelerate to 4.7 percent this year from 3.8 percent in 2022.
- Emerging and developing economies in the region poised to expand by 5.3 percent this year.
- China and India alone are expected to contribute more than half of global growth this year, with the rest of Asia contributing an additional quarter.
- Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam have returned to robust pre-pandemic growth.
- China’s sudden re-opening is the most significant forecast revision since October and is positive for the region because about half of the region’s trade takes place between its economies.
- Spillover estimate: for every percentage point of higher growth in China, output in the rest of Asia rises by around 0.3 percent.
- Advanced economies in Asia show mixed prospects:
  - Japan’s near-term outlook is stronger, supported by accommodative policies, border reopening and supply chain improvements, but growth would fall back in 2024 as conditions normalize and policy support eases.
  - Manufacturing-export performance has started to cool due to slowing global trading partners; Korea, Singapore, and Taiwan Province of China face export headwinds from the technology cycle and sagging microchip prices.

### Easing inflation and monetary policy considerations
- Headline inflation appears to have peaked during the second half of last year; core inflation remains more persistent and has yet to ease definitively.
- Expectation: inflation to return to central bank targets sometime next year amid easing financial and commodity headwinds.
- Global financial conditions have eased somewhat, and the US dollar has lost some strength.
- Asian central banks have been hiking interest rates to tackle above-target inflation; Asian currencies have rebounded, with most erasing about half of last year’s losses, easing pressure on domestic prices.
- Commodity and shipping price developments:
  - Commodity prices soared following Russia’s invasion of Ukraine, squeezing Asia’s energy importers early last year.
  - Soaring shipping costs raised the cost of imported goods, with particularly strong impacts on the Pacific Island Countries.
  - More recently, steady declines in both commodity and shipping costs have taken pressure off current accounts and inflation.
- Policy advice and risks:
  - Central banks need to stay alert because core inflation is still running above target and pandemic-related supply shocks and structural realignments complicate monetary calibration.
  - Signals about second-round inflation effects are mixed, heightening uncertainty.
  - Given two-sided risks to inflation in Japan, more flexibility in long-term yields would help avoid abrupt changes later.
  - Renewed dynamism in the Chinese economy may put upward pressure on global commodity and service prices, especially in countries expecting resurgent tourism; central banks should reaffirm commitment to price stability and may need to hike rates further if core inflation does not show clear signs of returning to target.

### Elevated debt, financial vulnerabilities, and policy priorities
- Medium-term outlook for China has been downgraded; a future slowdown there will weigh on growth prospects across Asia’s integrated supply chains and globally, increasing urgency for reforms to boost productivity and long-term growth across Asia.
- Fiscal considerations:
  - Fiscal deficits during the pandemic and higher long-term interest rates over the past year added to public debt burdens.
  - Several Asian countries face debt distress; authorities must continue with plans for gradual fiscal consolidation to avoid monetary-fiscal policy conflicts.
- Financial sector vulnerabilities:
  - Many Asian countries face elevated financial vulnerabilities, with high leverage across household and corporate sectors and significant bank exposure to real estate downturns.
  - Policy trade-offs exist between controlling inflation and ensuring financial stability.
  - There is a need to strengthen resolution frameworks.

*Source: Asia’s Easing Economic Headwinds Make Way for Stronger Recovery*

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## References

- [slowing global economy](https://www.imf.org/en/Blogs/Articles/2023/01/30/global-economy-to-slow-further-amid-signs-of-resilience-and-china-re-opening)
- [China](https://www.imf.org/en/News/Articles/2023/02/02/cf-chinas-economy-is-rebounding-but-reforms-are-still-needed)
- [Regional Economic Outlook for Asia and the Pacific](https://www.imf.org/en/Publications/REO/APAC/Issues/2022/10/13/regional-economic-outlook-for-asia-and-pacific-october-2022)
- [eased somewhat](https://www.imf.org/en/Blogs/Articles/2023/02/02/looser-financial-conditions-pose-conundrum-for-central-banks)
- [Commodity prices](https://www.imf.org/en/Blogs/Articles/2022/03/15/blog-how-war-in-ukraine-is-reverberating-across-worlds-regions-031522)
- [shipping costs](https://www.imf.org/en/Blogs/Articles/2022/03/28/how-soaring-shipping-costs-raise-prices-around-the-world)

_Source: https://www.imf.org/en/blogs/articles/2023/02/20/asias-easing-economic-headwinds-make-way-for-stronger-recovery_