Asia-Pacific can 'feel good' about 2023 growth outlook despite inflation, geopolitical risks, IMF official says

Asia-Pacific countries have ample reasons to "feel good" about growth prospects this year even as the world economy is beset with risks ranging from inflation to geopolitics-fuelled fragmentation, the IMF's top Asia official has said.

International Monetary Fund Asia and Pacific Department director Krishna Srinivasan, in an interview with This Week in Asia, said the end of China's Covid-19 travel chill was among the factors to be upbeat about the region's prospects. Thailand, Laos and Cambodia - popular haunts of Chinese tourists - were likely to benefit the most, he said.

"When the rest of the world is not doing so well and you are growing at 4.6 per cent, you should feel good," Srinivasan said in Hong Kong on the sidelines of the IMF's launch of its biannual regional outlook report.

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.

Srinivasan acknowledged that questions remained on whether "strong external headwinds" arising out of the United States and Europe could hamper Asia's prospects. But he also noted that Asia's exports within the region were around 50 per cent.

"So if inflation is brought under control ... the impetus from domestic demand will be there," Srinivasan said. "It could be a good offset to sluggish demand from US and Europe. So the combination of good impetus from China with robust domestic demand should provide a floor for these countries in terms of growth."

The IMF report released on Tuesday said China's rapid reopening in recent months following nearly three years of harsh pandemic lockdowns would have spillovers on Asia's consumption and service sectors.

"Asia and Pacific will be the most dynamic of the world's major regions in 2023, predominantly driven by the buoyant outlook for China and India," the report said.

Asia's economy was expected to expand 4.6 per cent this year after a 3.8 per cent increase in 2022, contributing around 70 per cent of global growth, the IMF said, upgrading its forecast by 0.3 of a percentage point from October.

China and India would be key drivers with an expansion of 5.2 per cent and 5.9 per cent, respectively, though growth in the rest of Asia was also expected to bottom out this year, the report said.

But the IMF cut next year's Asian growth forecast by 0.2 of a point to 4.4 per cent and warned of risks to the outlook, such as stickier-than-expected inflation, slowing global demand and the impact of US and European banking-sector stress.

"While spillovers to the region from stress in US and European financial sectors have been relatively contained thus far, Asia remains vulnerable to tightening financial conditions and to sudden and disorderly repricing of assets," the IMF said.

The Hong Kong economy, which rebounded with a 2.7 per cent expansion in the three months to March compared to the same period last year, could benefit from pent-up demand in the city and mainland China, but at the same time faced downsides from external risk, Thomas Helbling, the IMF's deputy director for the Asia and Pacific department, said at the regional report's launch.

Srinivasan in the interview flagged fiscal consolidation following the 2020-2022 period of intense Covid-related stimulus as an area for improvement for some countries in the region.

While some nations that spent big during the crisis had now made a "conscious attempt to pull back" on stimulus and instead focus on more targeted support, others were "not there as yet", Srinivasan said, without naming these economies.

Countries were being warned that debt overall in Asia had risen from 25 per cent before the pandemic to some 30 per cent currently. Now that the worst of the pandemic was over, governments needed to act with "a little bit of caution" and provide more targeted support, he said.

Srinivasan urged governments to address inflation head on and "don't waffle", as it was the "worst kind of tax on the poor". He pointed out that countries like Vietnam had eased monetary policy even as inflation stayed high.

"When you do that, you risk the fact that down the road you may have to tighten even more, even faster, even more aggressively," he said, adding that inflation "should not be an excuse to provide continued fiscal support".

Asked about the fragmentation of the global economy amid the US-China rivalry and the Ukraine-Russia war, Srinivasan echoed the view by others, including IMF managing director Kristalina Georgieva, that there would be no winners if the trend continued.

"People say some countries will benefit ... In the short-run, yes, you can fight over a slice of the pie," Srinivasan said. "But in the long run the pie becomes smaller, and that affects every country in the region."

Additional reporting by Reuters

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.