China's reopening will benefit Asia, but balancing inflation and growth will be a challenge: IMF economist
The International Monetary Fund's chief economist has voiced optimism that there will be positive spillover effects on Asian economies tied to the reopening of China as it exits the Covid-19 pandemic.
In an interview with This Week in Asia in Singapore on Tuesday, Pierre-Olivier Gourinchas said he was "reasonably confident" there would be a rebound in activity in China and current signs - including an uptick in domestic travel - pointed to a "quite strong reopening".
"This reopening is certainly going to boost the global economy," the Washington-based economist said. "Of course, it's going to benefit more countries that are close trading partners of China that includes many Asian economies."
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
The IMF raised its global growth forecast for this year by 0.2 percentage points to 2.9 per cent in its outlook report published on Tuesday, citing China's full reopening and strong spending in the United States. It projected China to record GDP growth of 5.2 per cent in 2023.
In line with that prediction, Asia's emerging markets - including China and India - will be key drivers of world growth this year, with expectations that the economies of the world's two most populous nations will make up 50 per cent of total growth.
"2023 is going to be the year where one of the main engines of growth is going to be coming from emerging Asia," Gourinchas said. "[It] is going to be a year of lower growth for many advanced economies."
In Asia, one crucial challenge for governments will be balancing rising inflation and growth. Gourinchas pointed out that a number of economies in the region, such as South Korea, have witnessed soaring prices even as central banks remained firm in tightening their monetary policies.
"This tightening of monetary policy is starting to show some effects but it's not bringing inflation yet back down to a level that would be comfortable for central banks," he said.
South Korea's consumer prices climbed 5.1 per cent in 2022, compared to a year earlier. Singapore's headline inflation averaged 6.1 per cent last year.
While acknowledging there was "certainly a risk" for central banks to overreact and hurt growth, Gourinchas suggested there were also risks of countries not doing enough, recommending they "keep maintaining monetary policy in a sort of contractionary mode up until the point at which inflation is on a declining path".
Amid recent concerns over a spike in energy prices as a result of China's reopening, the IMF chief economist noted that the opening up of the world's second-largest economy may put some upwards pressure on prices and increase demand for liquefied natural gas but concerns were relatively muted.
The IMF estimated global growth would contract slightly - from 3.4 per cent last year to 2.9 per cent in 2023 - and the broad slowdown meant the pressures would not be as huge. Futures for energy and other commodities would likely decline through 2023, he said.
Meanwhile, even as tech firms around the world continue to shed headcount, including in some Asian markets, Gourinchas said it was "not particularly worrying".
One reason behind the recent lay-offs was because tech companies accelerated hiring during the pandemic, and some have found it unsustainable. Even though these lay-offs have made headlines, the industry was still growing and the labour markets in the US and Europe remained tight, he said.
"If somehow [there is] a wave of lay-offs and the number of workers who lose their jobs start surging, then we would have to be concerned about maybe the economy tipping into a recession," Gourinchas added.
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.
