Asia's Growth and Inflation Outlook Improves, but Risks Remain

IMF Blog, April 30, 2024

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Regional growth forecast for 2024 raised to 4.5 percent, up 0.3 percentage point from six months earlier, after a 5 percent expansion in 2023.
Asia growth forecast for 2025 is unchanged at 4.3 percent.
Upgrades driven by:
- China: expected policy stimulus to provide support.
- India: public investment remains an important driver, making it the world’s fastest-growing major economy.
In other emerging market economies in Asia, robust private consumption is expected to remain the main growth driver amid a still subdued external environment.
Global disinflation and the prospect of lower central bank interest rates make a soft landing more likely; near-term risks are described as broadly balanced.

Inflation has continued to retreat across Asia despite robust demand growth, owing to earlier monetary tightening, a global decline in commodity and goods prices, and the abating of supply-chain disruptions.
Disinflation is uneven:
- Persistent services inflation has kept inflation above target in New Zealand, Australia, and Korea.
- Consumer prices have fallen in Thailand and China.
- Core inflation (excluding food and energy) is low in China, reflecting legacy issues from the pandemic and the property sector correction.
- Elsewhere, inflation is close to target.
Policy implications:
- Economies with elevated inflation may need to keep interest rates higher for longer.
- Economies with core inflation at or close to target may find space to lower interest rates later in the year.
- Economies with undesirably low inflation should adopt an accommodative stance.
- Central banks should focus on domestic conditions and avoid making decisions overly dependent on the expected path of US interest rates; following the Federal Reserve risks falling behind or moving ahead of the curve and destabilizing inflation expectations.

Asian governments need greater urgency in reducing debt and deficits; progress last year fell behind IMF staff projections.
IMF 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 with stabilization, debt would remain significantly higher than before the pandemic.
Policy recommendations:
- Streamline expenditures.
- Especially, raise more revenue.
- Reducing debt service costs would free up budget room for development needs, social safety nets, and climate mitigation and adaptation.

The deepening property sector downturn marred China’s rebound after the post-COVID reopening in early 2023, though the economy grew by 5.2 percent in 2023, more than previously forecast.
Fiscal stimulus enacted last October and in March helped mitigate declining manufacturing activity and sluggish services.
IMF raised China’s growth estimate for 2024 to 4.6 percent, up by 0.4 percentage points; first quarter growth came in stronger than expected, so the forecast may be revised upward.
Risks and regional spillovers:
- A protracted property sector correction in China could weaken demand and increase the odds of sustained deflation.
- Trade spillovers include direct trade links (see the October 2023 Regional Economic Outlook) and China's falling export prices, which reduce both export prices and quantities of other Asian economies, especially those with a similar export structure.
Policy recommendations for China:
- Accelerate the exit of nonviable property developers.
- Promote completion of housing projects.
- Manage debt risks of local governments.
- Avoid policies that boost supply indiscriminately (such as investment subsidies to specific companies and industries), which would worsen overcapacity, reinforce deflationary pressures, and potentially provoke trade frictions.

Increasing trade-restricting policies in Asia and elsewhere risk an inefficient lengthening of supply chains as trade is channeled through third countries.
Global conflict adds risks to trade, exemplified by re-routing of ships around Africa to avoid the Red Sea, which raises shipment costs.
Pacific island countries are especially affected due to high dependence on imports and poor integration into global shipping networks.
Policy guidance:
- Policymakers should be cautious not to aggravate trade frictions.
- Carefully design industrial policy measures to avoid trade-distorting side-effects, greater fragmentation, and inconsistency with World Trade Organization rules.

Structural challenges include population aging, slowing productivity growth, and the adoption of new technologies such as artificial intelligence.
Common policy priorities across Asia:
- Invest in capital.
- Invest in digital infrastructure.
- Invest in workforce skills.
These investments are needed to preserve Asia’s role as a growth engine of the world economy.

Krishna Srinivasan, April 30, 2024 — IMF blog post