Asia Poised to Drive Global Economic Growth, Boosted by China’s Reopening

IMF Blog, May 2, 2023

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Asia and the Pacific is described as a relative bright spot amid a more somber global economic recovery.
China and India together are forecast to generate about half of global growth this year.
The region will contribute about 70 percent of global growth this year—a much greater share than in recent years.

Growth in Asia and the Pacific is forecast to accelerate to 4.6 percent this year from 3.8 percent last year.
China’s reopening is the main development boosting regional growth through surging consumption that supports activity across the region despite weaker external demand.

Drivers:
- Reopening of China, leading to surging consumption and spillover growth across the region.
Risks:
- Spillovers from greater-than-expected US monetary policy tightening.
- Supply chain disruptions associated with geoeconomic fragmentation.
- High leverage among households and corporates, which increases vulnerability to shocks.

Monetary and fiscal policies will need to remain tight in the short term to:
- Bring inflation durably back to central bank targets.
- Stabilize public debt.
An integrated policy response using all available tools is needed to manage global shocks.
Financial systems should be carefully monitored given high leverage among households and corporates, despite the observation that Asia’s financial systems haven’t seen major impacts following recent banking turmoil in the United States and Europe.

The Chinese economy, long the primary engine of regional and global growth, is expected to slow considerably due to:
- Unfavorable demographics.
- A productivity slowdown.
The region should prioritize structural reforms to boost long-term growth, including:
- Innovation and digitalization.
- Accelerating the green energy transition.

Source: Thomas Helbling, Shanaka J. Peiris, Krishna Srinivasan; May 2, 2023.