## Transcript of the Asia and Pacific Department Press Briefing

_IMF News, October 13, 2023_

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## Bibliographic details
- Published: October 13, 2023

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### Global outlook and main risks
- Global growth is forecast to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024.
- Outlook is supported by continued consumption dynamism in the U.S., but faces pressures from:
  - China's worsening property crisis;
  - tight policy stances around the world;
  - the consequence of Russia's war in Ukraine;
  - growing geoeconomic fragmentation.
- IMF blog mentioned: "Asia Continues to Fuel Global Growth, But Economic Momentum is Slowing."
- Full Regional Economic Outlook Report launch: October 18 (next Wednesday), in Singapore at 9 a.m. local time.

### Asia-Pacific regional growth and contribution
- Asia-Pacific region growth: expected to grow by 4.6 percent in 2023 and by 4.2 percent in 2024.
- Region projected to contribute to about two-thirds of global growth in 2023.
- ASEAN economies: expected growth of 4.2 percent in 2023 and 4.6 percent in 2024; downward revision of 0.4 percentage points in 2023 and 0.3 percentage points in 2024 relative to April WEO.
- GDP in the Pacific Island countries with high dependance on tourism is still more than 10 percent below pre-pandemic levels with challenges from higher fiscal deficits, elevated debt, and shrinking fiscal space.

### Major economies in the region — forecasts and drivers
- China:
  - Revised growth forecast: 5 percent for 2023 and 4.2 percent for 2024.
  - Reopening boosted services and retail sales; manufacturing benefit proving short-lived.
  - Real estate sector: further pressures on debt repayments, home sales, and investment.
  - Manufacturing PMI: showed an expansion of activity in September; retail sales year-on-year growth improved but monthly data are volatile.
- Japan:
  - Projected to grow by 2 percent in 2023 (0.7 percentage point increase from April WEO forecast).
  - Drivers: strong domestic demand, accommodative monetary and fiscal policies.
- India:
  - Expected to grow by 6.3 percent in both 2023 and 2024.
  - Drivers: large public capital expenditure push and resilient domestic demand.
- Korea:
  - Near-term growth dampened by downturn in technology exports; expected to rebound next year as technology cycle turns.
- Australia:
  - Large public investment and robust external demand should lift growth, but domestic demand weakening due to rising mortgage payments and lower real disposable incomes.

### Activity patterns across sectors and countries
- Services: continued resilience and strength across Asia (PMI evidence).
- Manufacturing: weakness across Asia; persistent downturn of the technology cycle weighing on manufacturing in advanced economies and, in September, manufacturing activity in Asia's emerging markets excluding China moved into negative territory.
- China-specific note: core inflation came at 0.7 percent; IMF does not see deflation in baseline and expects core inflation to continue rising as recovery continues and capacity utilization increases.

### Inflation, monetary policy guidance, and risks
- Headline inflation has declined from post-pandemic peaks as global commodity prices receded and monetary policy bites, but signs of renewed price pressures have emerged 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.
- Policy guidance:
  - Central banks should "stay the course" with policies to ensure inflation is durably at target and expectations are anchored.
  - With accommodative financial conditions in Asia's emerging markets there is "no urgent need to ease monetary policy."
  - Avoid rushing to cut rates unless inflation comes down to target ranges; targeted support to the poor and vulnerable recommended where subsidies are reduced.

### Financial markets, vulnerabilities, and supervisory advice
- Financial conditions in advanced Asia have tightened as higher rates take hold; emerging Asia has seen accommodative conditions but is exposed to external pressures.
- Recent developments:
  - Rise in U.S. long-term yields after the September U.S. Fed meeting has exerted pressure.
  - Long-term local currency sovereign yields in some Asia and Pacific economies have increased substantially since the FOMC meeting in September.
  - Asian currencies have depreciated across the board, though to a limited extent compared to previous USD strengthening episodes.
- Supervisory and policy recommendations:
  - Financial supervisors should remain vigilant on systemic risks and calibrate macroprudential measures given higher leverage and rates.
  - If financial stress emerges, deploy liquidity and other support measures promptly, and modernize resolution frameworks.

### Structural challenges and policy priorities
- Region faces persistent medium-term output losses, China's structural slowdown, geoeconomic fragmentation, and inflation.
- Policy priorities highlighted:
  - Rebuild fiscal buffers after pandemic support; wind down broad pandemic measures and target assistance to poor and vulnerable.
  - Bolster capital and liquidity buffers in financial sector.
  - Use exchange rate flexibility to absorb shocks.
  - Continue structural reforms to improve productivity, connectivity, digitalization, and business environment (examples for China: restructure distressed developers and unfinished projects, restructure local government debt, price adjustments, level playing field between private and state-owned enterprises, reduce internal restrictions on labor mobility).
  - For Sri Lanka and similar cases: pursue SOE reforms and targeted cost-reflective pricing with compensatory targeted support for the poor and vulnerable.

### Scenarios on geoeconomic fragmentation and trade reconfiguration
- IMF analysis on de‑risking/geofragmentation scenarios ("friendshoring" and "reshoring"):
  - Both scenarios reduce global growth and reduce China's growth.
  - Historical/quantified linkage: when Chinese growth declines by 1 percentage point, on average other economies' growth declines by 0.3 percentage points over the medium term.
  - Short-term trade diversion may benefit some countries (e.g., Vietnam) from FDI or assembly relocation, but over the long run aggregate demand losses mean "everybody loses."
  - Recommendation: fight against forces of fragmentation and de‑risking; promote integration.

### Country-specific notes and program status references
- Korea: began retrenching fiscal support in the second half of 2022 and continued in 2023 to build fiscal buffers.
- Sri Lanka:
  - IMF emphasizes cost-recovery pricing and targeted support; SOE and electricity sector reforms part of program engagement.
  - Debt restructuring engagements and financing assurances will be assessed in reviews; IMF does not negotiate private creditor agreements but assesses consistency with debt targets and macro framework.
- Nepal:
  - Growth stalled last year; projected mild recovery of 3.5 percent for the year supported by strong tourism and additional hydropower capacity.
  - Increased absorption of external concessional financing and improved domestic revenue mobilization recommended.
  - Progress: ECF-supported program has made good progress and led to a staff level agreement on the third review under the ECF.
- Bangladesh:
  - IMF projection: 6 percent growth for FY '24 (unchanged from FY '23); government target cited at 7.5 percent for FY '24.
  - Policy advice: maintain macro stability (tight monetary policy, unified exchange rate flexibility, prudent fiscal stance) while pursuing revenue mobilization and structural reforms to raise medium-term potential.
- Indonesia:
  - IMF forecasts 5 percent growth in 2023 and 5 percent in 2024.
  - Macro policies described as prudent: inflation control, prudent fiscal stance, structural dynamism.
  - IMF hopes continuity of reform-oriented policies through upcoming political cycles.

*Transcript of the Asia and Pacific Department Press Briefing — October 13, 2023, IMF Communications Department.*

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