India and China are expected to contribute more than half of the global growth this year while the rest of Asia will contribute an additional quarter, according to the International Monetary Fund’s (IMF) recent blog. The IMF explained that China reported a faster-than-expected rebound in economic activity after it halted its zero-COVID policy and reopened in the second half of 2022.
The Washington DC-based lender added that Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are back to their robust pre-pandemic growth on border reopening, supply chain improvements, and the boom in the service sector.
The IMF furthermore stated that economic conditions in Asia and the Pacific started to improve with food and oil prices coming down.
The global lender noted, “These developments are helping improve prospects across the region, with growth set to accelerate to 4.7 per cent this year from 3.8 per cent in 2022. This will make it by far the most dynamic of the world’s major regions and a bright spot in a slowing global economy.”
The Russian invasion of Ukraine and the rise in policy rates by central banks across the globe were classified as the only impediments to economic activity due to the consequent rise in commodity prices and inflation concerns.
While the IMF was positive about China’s contribution to global growth, it also sounded a note of caution. The global lender stated that the renewed dynamism of the Chinese economy may lead to a rise in global commodity and service prices. The IMF said, “The renewed dynamism of the Chinese economy may put upward pressure on global commodity and service prices, particularly in countries expecting resurgent tourism.”
It added that several Asian countries continue to face debt distress as higher spending during the pandemic led to a rise in fiscal deficits. The IMF said, “With several Asian countries facing debt distress, authorities must continue with their plans for gradual fiscal consolidation. Doing so will also ensure that monetary and fiscal policies are not acting at cross purposes.”
The IMF said these are not the only challenges faced by Asian countries as they also have to grapple with high leverage across household and corporate sectors and significant exposure of banks to the real estate sector.
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