Opening Remarks by IMF Asia and Pacific Department Director Krishna Srinivasan at the Regional Economic Outlook Press Conference, Marrakesh, Morocco, October 13, 2023
IMF News, October 13, 2023
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- Published: October 13, 2023
Global outlook
- Global growth is forecast to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024.
- Outlook supported by continued consumption dynamism in the US.
- Downside pressures: China’s worsening property crisis, tight policy stances around the world, the consequences of Russia’s war in Ukraine, and growing geoeconomic fragmentation.
Asia-Pacific regional summary and contribution to global growth
- Asia-Pacific is expected to grow by 4.6 percent in 2023 and by 4.2 percent in 2024.
- Region is on track to contribute about two-thirds of global growth.
- Pacific Island Countries with high dependence on tourism: GDP is still more than 10 percent below pre-pandemic levels, with challenges from higher fiscal deficits, elevated debt, and shrinking fiscal space.
Country and sub-region forecasts and developments
- China:
- Reopening boosted services and retail sales; benefit to manufacturing is short lived.
- Real estate sector faces pressures on debt repayments, home sales, and investment.
- Revised growth forecasts: 5 percent for 2023 and 4.2 percent for 2024.
- Japan:
- Economy projected to grow by 2 percent in 2023.
- This is 0.7 percentage points higher than in the April forecast.
- Drivers: strong domestic demand and accommodative monetary and fiscal policies.
- India:
- Growth remains robust, driven by large public capital expenditure push and resilient domestic demand.
- Expected growth: 6.3 percent in 2023 and 6.3 percent in 2024.
- Korea:
- Downturn in technology exports projected to dampen near-term growth momentum.
- Economy expected to rebound next year as the technology cycle turns the corner.
- Australia:
- Large public investment and robust external demand should lift growth.
- Domestic demand weakening due to rising mortgage payments and lower real disposable incomes.
- ASEAN economies:
- Expected growth: 4.2 percent in 2023 and 4.6 percent in 2024.
- Downward revision relative to April World Economic Outlook: 0.4 percentage points in 2023 and 0.3 percentage points in 2024.
- Downgrade reflects weaker growth outturns and external demand, waning revenge consumption, and monetary policy tightening.
High-frequency indicators, sectoral dynamics, and inflation
- China:
- Manufacturing PMI showed an expansion of activity in September.
- Year-on-year growth of retail sales has improved.
- Monthly data are volatile; caution warranted in interpreting short-term fluctuations.
- Services sector in Asia:
- Continued resilience and strength evident from PMIs.
- Manufacturing sector in Asia:
- Exhibits weakness across the region.
- Persistent downturn of the technology cycle weighs on manufacturing in advanced economies.
- In September, manufacturing activity in Asia’s emerging markets (excluding China) moved into negative territory.
- Inflation:
- Headline inflation has declined from post-pandemic peaks as global commodity prices receded and monetary policy took effect, albeit with signs of renewed price pressures more recently.
- In a few advanced economies in Asia, core inflation remains sticky due to tight labor markets and positive output gaps.
- Except for Japan, inflation is expected to return to within target ranges by the end of 2024.
- Risks to persistent inflation: recent commodity price spikes, exchange rate changes yet to fully pass through, and tighter labor markets.
Financial markets, vulnerabilities, and supervisory guidance
- Financial conditions:
- Advanced Asia: tightened as higher rates took hold.
- Emerging Asia: saw accommodative financial conditions, though recent rise in US long-term yields following the September US FED meeting has exerted pressures.
- Recent developments:
- Financial tightening observed across Asian markets in the past few weeks.
- Long-term local currency sovereign yields in some economies in the Asia and Pacific have increased substantially since the FOMC meeting in September.
- Asian currencies have depreciated across the board, although to a limited extent compared to previous US dollar-strengthening episodes.
- Recommendations for supervisors:
- Remain vigilant on systemic risks and calibrate macro-prudential measures given higher leverage and rates.
- If financial sector stress emerges, deploy liquidity and other support measures promptly while modernizing resolution frameworks.
Policy messages and priorities for the Asia-Pacific region
- Monetary policy:
- Must maintain a sufficiently restrictive stance until inflation is firmly back on target.
- With accommodative financial conditions in Asia’s emerging markets, there is no urgent need to ease monetary policy.
- Fiscal policy:
- Fiscal consolidation should continue to address rising debt servicing costs, through credible medium-term fiscal frameworks.
- Faster and more efficient coordination on debt resolution is needed to ease funding stresses faced by some emerging market and developing economies.
- Macroprudential policy:
- Use macroprudential policies to tackle financial sector vulnerabilities driven by the higher-for-longer interest rate environment.
- Structural and multilateral priorities:
- Structural policies to boost productivity and strengthen multilateral cooperation are urgently needed to mitigate medium term output losses and risks posed by global de-risking.
- Address rising inequality and facilitate the green transition to ensure inclusive and sustainable growth.
Opening Remarks by IMF Asia and Pacific Department Director Krishna Srinivasan at the Regional Economic Outlook Press Conference, Marrakesh, Morocco, October 13, 2023