The International Monetary Fund (IMF) has lowered its growth forecast for the Asia Pacific region this year to 4.2% -- 0.7 percentage point lower than it expected in April, and well below the region’s 6.5% growth in 2021.
The fund also cut its 2023 forecast for the area to 4.6%, down by 0.5 percentage point.
Much of the downgrade reflects the ongoing spillover from shocks including Russia’s invasion of Ukraine, China’s economic slowdown and rising global interest rates.
“Risks that we highlighted in our April forecast -- including tightening financial conditions associated with rising central bank interest rates in the United States and commodity prices surging because of the war in Ukraine -- are materialising,” Krishna Srinivasan, director of the Asia and Pacific Department wrote in a blog post Thursday. “That in turn is compounding the regional growth spillovers from China’s slowdown.”
China is tipped to expand by 3.3%, according to the IMF, down from its 4.4% growth projection in April. The IMF expects the world’s second-largest economy to record 4.6% growth next year, a reduction of 0.5 percentage point that reflects the hit from Covid Zero and the real estate slump.
The IMF warned there will be sizable spillovers on regional trading partners.
“Japan and Korea, the two largest regional economies integrated closely with global supply chains and China, will also see growth slow on weaker external demand and disruptions to supply chains,” Srinivasan wrote.
Increased trade policy uncertainty and a fraying of supply chains are also “expected to delay the economic recovery and exacerbate scarring from the pandemic in Asia,” Srinivasan wrote. “While growth is weakening, Asian inflation pressures are rising, driven by a global surge in food and fuel costs resulting from the war and related sanctions.”
Still, the fund notes some signs of a rebound in economic activity in the region as some pandemic restrictions on mobility are gradually eased.
"The resilience of manufacturing and rebound in tourism is supporting a gradual rebound in Malaysia, Thailand and the Pacific island countries," Srinivasan wrote.