The International Monetary Fund said on Wednesday that rising Covid cases in China and the turmoil in Ukraine represent obstacles for Asia’s growth.
“Asia is clearly facing headwinds, both from the war in Ukraine but also from the lingering effects of Covid now being much more pronounced in China than before,” said Anne-Marie Gulde-Wolf, the acting director of the IMF’s Asia and Pacific Department.
She stated that the projection for Asia in 2022 had been reduced by half a percentage point to 4.9 per cent, down from a January estimate of 5.4 per cent.
In its new World Economic Outlook, released on Tuesday, the IMF lowered its growth forecasts for China’s GDP to 4.4 per cent, down from 4.8 per cent previously. China’s official goal is to achieve a growth rate of around 5.5 per cent.
“Inflation is an issue in many of these countries,” Gulde-Wolf told CNBC’s “Squawk Box Asia.”
“In most countries, we are already seeing price pressures — the exception here being China and Japan, where price pressures remain subdued,” she said.
Inflationary pressures in China are “very restrained,” she noted, because the government is ready to intervene.
“We are seeing China already taking policy measures, both monetary and fiscal. We expect fiscal policy to be expansionary in 2022. And the monetary policy actions are also helping,” she said.
She went on to say that economic measures would be more effective if they were geared at offering more direct assistance to the “most vulnerable.”
The fund’s forecasts for Asia had included the Federal Reserve’s steps to contain soaring inflation, she said. Still, tighter monetary policy in the United States would have a significant influence on Asian output.
The majority of Asian countries today have strong reserve levels, improved oversight, and improved monetary frameworks, among other things. As a result, we have a cautious optimism.
However, she believes there could be a positive impact on Asian commerce.
“If demand is high in the U.S. that would mean that there would be more demand for Asia’s exports. And that would be positive,” she added.
“However, if the Fed action is on counteracting supply pressures and supply-side induced prices, this could lead to capital flows out of Asia,” the IMF official said.
Nonetheless, she continued, Asia as a whole is better prepared to deal with these circumstances than it was previously.
“Most Asian countries now have comfortable reserve positions, better supervision, better monetary frameworks and the like. So we are cautiously optimistic,” Gulde-Wolf said.
However, she cautioned that there are still obstacles to overcome.
“At the same time, we have also seen leverage in Asia going up — higher consumer lending, increasing sovereign debt and foreign exchange pressures,” she said, pointing out that significant appreciation of the U.S. dollar could negatively impact Asia.
(Adapted from CNBC.com)