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IMF Cuts Asia’s Economic Forecasts as China’s Slowdown Bites

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IMF Cuts Asia’s Economic Forecasts as China’s Slowdown Bites

(CTN News) – The International Monetary Fund (IMF) has reduced its economic prognosis for Asia as the chances for the region’s recovery are hampered by global monetary tightening, increasing inflation attributed to the conflict in Ukraine, and China’s abrupt downturn.

Despite Asia’s still-moderate inflation compared to other areas, most central banks must keep hiking interest rates to keep inflation expectations from becoming unanchored, the IMF said in its Friday-released Asia-Pacific regional economic outlook report.

With a weaker-than-expected second quarter, Asia’s early-year robust economic recovery is losing steam, according to Krishna Srinivasan, head of the IMF’s Asia and Pacific Department.

IMF projects Asia’s economy to grow 4% this year, 4.3% in 2023

Further monetary policy will be needed to guarantee that inflation returns to its goal and that inflation expectations stay firmly anchored.

The IMF reduced its predictions for Asia’s growth to 4% this year and 4.3 percent next year, respectively, down 0.9 percent points and 0.8 points from April. A slowing of 6.5% followed the growth in 2021.

The research said that as the pandemic’s impacts fade, the area would have to contend with global financial tightening and an anticipated decline in foreign demand.

According to the IMF, one of the major obstacles is China’s abrupt and widespread economic downturn, which is attributed to severe COVID-19 lockdowns and its escalating real estate problems.

According to the research, “the sector’s access to market funding has grown more problematic” as more property developers have defaulted on their obligations in recent months.

IMF cuts China’s forecasts, expects 4.4% growth next year

“Due to significant exposure, risks to the financial system from the real estate industry are increasing.”

Following an increase of 8.1 percent in 2021, the IMF expects China’s GDP to fall to 3.2 percent this year, a 1.2-point revision downward from its April prediction.

According to the IMF, the second-largest economy in the world is expected to rise by 4.4 percent next year and 4.5 percent in 2024.

The IMF does not anticipate a swift resolution to Beijing’s real estate problem, which it said needs to be handled comprehensively to sustain GDP, even if it expects China to progressively reduce the tight COVID-19 limitations next year.

With the party conference behind us, Srinivasan hoped that policy responses to these issues would get more consideration.

But since it may take longer, he said, “we don’t see a speedy settlement of the real estate sector (problem).”

The IMF said that the “judicious” use of foreign currency intervention might lessen the burden on monetary policy in certain nations as Asian developing economies are compelled to boost rates to prevent swift capital outflows.

According to the IMF, this instrument may be especially helpful in Asia’s weaker foreign exchange markets, such as the Philippines, or in countries like Indonesia, where currency mismatches on bank or company balance sheets increase the risk of exchange-rate volatility.

It was stated that foreign currency intervention should only be transitory to prevent negative side effects from prolonged usage, which may include greater risk-taking in the private sector.

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