## Opening Remarks and Presentation: IMF Press Briefing on Economic Outlook for Asia Pacific and Korea _IMF News, May 4, 2023_ ## Source details **Canonical URL:** [Opening Remarks and Presentation: IMF Press Briefing on Economic Outlook for Asia Pacific and Korea](https://www.imf.org/en/news/articles/2023/05/03/sp050423-kr-apdreo-korea) ## Other formats - [Markdown version](/en/news/articles/2023/05/03/sp050423-kr-apdreo-korea/index.md) - [Structured JSON version](/en/news/articles/2023/05/03/sp050423-kr-apdreo-korea/index.json) - [Bundle manifest](/en/news/articles/2023/05/03/sp050423-kr-apdreo-korea/bundle-manifest.json) ## Bibliographic details - Published: May 4, 2023 --- ### Global outlook and immediate risks - Global growth is expected to decelerate and bottom out in 2023, as rising interest rates and Russia’s war in Ukraine weigh on activity. - Global inflation is easing but remains stubbornly high. - Banking strains in the US and Europe have injected greater uncertainty into an already complex economic landscape. ### Asia and Pacific: recent performance and forecasts - Growth in Asia and the Pacific is projected to increase in 2023 to 4.6 percent, up from 3.8 percent in 2022. - This reflects an increase of 0.3 percentage points compared with projections in the October WEO. - In Asia’s advanced economies, growth will slow in 2023 to 1.6 percent, about 0.4 percentage points lower than projected in October. - The economies of Asia and the Pacific are expected to contribute about 70 percent of global growth in 2023. ### China: reopening and regional spillovers - The Chinese economy is expected to expand by 5.2 percent in 2023. - The upward revision to Chinese growth by 0.8 percent in 2023 is the largest in this edition of the WEO. - Empirical spillover: a one percentage point increase in Chinese growth leads to an increase, on average, of about 0.3 percentage points in the rest of Asia. - Current recovery in China is led by services and consumption demand, generating stronger spillovers to the region than in past cycles. - Spillover heterogeneity: countries exporting final consumption goods to China or dependent on tourists from China will gain more; exporters of raw commodities to China are unlikely to receive a strong boost this time. ### External demand and trade developments - Weakening external demand from the US and Europe is weighing on the region; very weak import growth is expected in 2023 and 2024 for the US and Europe. - This is putting pressure on Asia’s exports of manufactured goods. - Recent moderation in demand for technology exports from Asia to the US, with orders for semiconductors having slowed substantially. ### Inflation dynamics and monetary policy in Asia - Headline inflation has been easing but remains above central bank targets in most economies. - As commodity prices recede, core inflation is becoming a more important driver of headline inflation and is proving stickier. - Output gaps are closing or have closed across the region; exchange rate depreciations are still passing through to domestic prices. - Analysis finds exchange rate pass-through is stronger when inflation is already high. - Monetary tightening has slowed or paused in most countries; view is that monetary policy in Asia will need to remain tight until inflation falls durably back to target. - Exceptions: China and Japan, where output is below potential and inflation expectations have stayed muted. - Japan: uncertainty around direction of monetary policy amid a rise in inflation; Japanese government bond yields have increased notably since October. Changes that lead to further increases in yields could have global spillovers through Japanese investors and portfolio rebalancing. ### Medium-term risks and structural priorities - Over the medium term, Chinese productivity and investment are expected to slow, lowering Chinese growth below 4 percent by 2028. - Risk of global economy fragmenting into trading blocs; larger exposures would be to Asian economies exporting significantly to the US and Europe and those integrated in value chains exporting intermediate goods to China. - Policy recommendation: implement structural reforms to boost long-term growth, prioritizing reforms that boost innovation and digitalization, while accelerating the green energy transition. ### Republic of Korea: outlook, vulnerabilities, and policy stance - Growth has slowed in recent quarters due to subdued trading partner growth and the global semiconductor downcycle affecting exports. - Effects of past monetary policy tightening and normalization of fiscal policy following significant stimulus in 2022 are affecting domestic demand. - Higher interest rates have contributed to ongoing correction of housing prices, holding back domestic demand. - Net exports contribution turned positive again in 2023Q1, driven by automobile shipments. - China’s rapid recovery and a broadening of its expansion should increasingly benefit Korea’s exports. - Industry experts expect an improvement in the semiconductor cycle later in the year, benefiting Korea’s exports. - Growth forecast for Korea: 1.5 percent in 2023, with strengthening momentum in H2 carrying into 2024, where growth is expected at 2.4 percent. ### Financial sector and housing market risks in Korea - Housing market downturn linked to potential financial sector vulnerabilities; risks associated with real estate project financing remain. - Overall liquidity conditions have improved significantly, but credit risk is elevated for some small and medium-sized developers and construction firms. - Pockets of vulnerability may exist in some non-bank financial institutions heavily exposed to project financing, though not seen at systemic scale. ### Inflation and monetary policy in Korea - Inflation has remained significantly above the Bank of Korea’s 2 percent target. - Headline inflation has come down with lower international energy prices, but core inflation (excluding food and energy) has not yet come down decisively. - Near-term: monetary policy needs to remain focused on the inflation challenge; premature easing should be avoided. - Policy tradeoffs shifting as growth momentum slows and labor market tightness is expected to ease; risks of policy overtightening need to be minimized. - Bank of Korea has paused rate hikes in the February and April meetings while keeping options open for further hikes depending on incoming data. ### Fiscal policy and public debt dynamics in Korea - Following significant fiscal support measures in early 2022, fiscal normalization started in the second half of 2022 and continues in 2023. - Marked reduction of the central government fiscal deficit to below 1 percent of GDP in 2023 and 2024. - Fiscal normalization helps support monetary policy to address inflation and improves public debt dynamics by moderating the pace of public debt build-up after pandemic increases. *Opening Remarks and Presentation: IMF Press Briefing on Economic Outlook for Asia and the Pacific, May 3, 2023 (As prepared for delivery).* --- ## References - [Regional Economic Outlook: Asia and Pacific, May, 2023](https://www.imf.org/en/publications/reo/apac/issues/2023/04/11/regional-economic-outlook-for-asia-and-pacific-april-2023) - [Presentation](https://www.imf.org/-/media/files/news/speech/2023/050423-apdreo-launch-press-briefing-kor.pptx) - [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm) - [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm) - [Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm) - [Speeches](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [Our analysis](https://www.imf.org/en/Publications/WP/Issues/2023/04/28/State-Dependent-Exchange-Rate-Pass-Through-532680) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2023/05/03/sp050423-kr-apdreo-korea_