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Asia’s Prospects for A Soft Landing Have Improved
January 30, 2024
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Huong Lan Vu
Phone: +1 202 623-7100Email: MEDIA@IMF.org
January 30, 2024
PRESS OFFICER: Huong Lan Vu
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Remarks by Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department
Press Conference on the Regional Economic Outlook
(As prepared for delivery)
Good morning. Before I answer your questions, please allow me to make a few opening remarks on global economic developments, notably in Asia and the Pacific, and policy priorities for Asian policymakers.
Let me start with global developments.
Global growth has proven surprisingly resilient, and inflation continues to decline steadily. Stronger private and government spending upheld demand in 2023, despite tight monetary conditions. On the supply side, higher labor force participation, the unwinding of supply chain bottlenecks, and lower energy prices all supported activity.
For the world economy, we now project 3.1 percent growth for 2024—the same growth rate as in 2023. For 2025, we anticipate a modest increase to 3.2 percent.
The good news is that these figures are somewhat better than the forecast we had in the October 2023 World Economic Outlook. The not so good news is that they remain significantly below the historical (2000-2019) average for global growth of 3.8 percent.
Global inflation is projected to fall from 6.8 percent in 2023 to 5.8 percent this year and to 4.4 percent in 2025. Core inflation is also on a downward trend.
Turning to Asia, the good news is that we have revised growth upward for both 2023 and 2024.
For 2023, we now estimate growth at 4.7 percent, compared to our 4.6 percent projection in October. China and India account for most of the upward revision. In China, growth was supported by higher spending on disaster reconstruction and resilience projects. In India, strong domestic demand underpinned another increase in our growth estimate.
We have also upgraded our regional growth forecast for 2024 to 4.5 percent, from 4.2 percent in October. What explains this?
Overall, Asia is on-track to deliver again two-thirds to global growth in 2024, as it did in 2023.
The regional average, however, hides significant divergence between countries. In Japan, we expect growth to remain above potential but to slow from about 2 percent in 2023 to about 1 percent in 2024, as one-off factors that supported activity last year fade—including a depreciated yen, strong tourism, and a recovery in business investment. Growth in India, on the other hand, is expected to remain strong at 6.5 percent in both 2024 and 2025.
For 2025, we project growth in the region to decelerate mildly to 4.3 percent, reflecting to a large extent China’s growth slowdown.
On inflation, the news has also been mostly positive, which improves the prospects for a soft landing.
Let me take half a step back. In Asia, post-COVID price pressures were, on average, less intense than elsewhere to begin with. They are now receding rapidly. We estimate that average Asian inflation fell from 3.8 percent in 2022 to 2.6 percent in 2023, with particularly swift progress in emerging Asian economies. Many regional central banks are on course to reach their inflation targets in 2024. Provided policymakers hold steady until inflation is firmly re-anchored, scope for monetary easing may emerge later in the year.
Again, the picture across Asia is not uniform. In China, inflation was only 0.3 percent in 2023, fueling concerns about deflation. The weakness reflects mainly lower food and energy prices but also subdued core inflation. Inflation is expected to recover gradually through 2025. In Japan, we expect inflation to slow from 3.2 percent in 2023, but to remain above the 2 percent inflation target until 2025.
The relatively benign inflation environment had unexpected side effects in 2023: with less price pressures to combat, Asian central banks needed to increase interest by less than their counterparts elsewhere. Hence, in the second half of 2023, the U.S. Federal Funds rate exceeded the average policy rate in Emerging Asia—an unusual constellation that triggered depreciation pressures on Asian currencies in the fall of 2023.
These pressures have abated for now, as the Federal Reserve has signaled interest rate cuts going forward. However, there is a risk that divergent monetary stances in the United States and in Asia would trigger sharp exchange rate movements also this year. If so, central banks should avoid being distracted by temporary turbulence and focus firmly on price stability.
Even though the outlook has improved, important risks remain.
Now what should policymakers prioritize? In our view, this is the time to strengthen the resilience of Asia’s economies.
Before addressing your questions, please allow me to make a couple of points on the excellent cooperation between the IMF and the Japanese Authorities.
These are just a few examples of the important role Japan has played in partnering with the IMF to support the global community.
Thank you very much. Now Aki and I are both ready to answer your questions.
