According to the International Monetary Fund (IMF), Asia-Pacific is projected to be the “most dynamic of the world’s major regions” in 2023, with China and India driving its economic growth. The region’s growth is forecast to be at 4.6%.
The IMF also advised key central banks in Asia, excluding Japan and China, including India’s, to keep their monetary policy tight to bring down inflation. The IMF warned that the costs of failing to bring inflation below target outweigh the benefits of keeping monetary conditions loose, and insufficient tightening in the short term could lead to a larger contraction later to avoid high inflation becoming ingrained.
In its regional economic outlook report, the IMF stated that the reopening of China’s economy, which is expected to grow at 5.2% in 2023, will play a crucial role in the region. The spillover effect on Asia is expected to be focused on consumption and service-sector demand rather than investment.
The IMF lowered India’s growth forecasts for the current fiscal year and the next by 20 bps and 50 bps to 5.9% and 6.3% respectively on April 11. The IMF has maintained these projections and also stated that growth in the rest of Asia is expected to bottom out this year.
The latest India forecast by the IMF aligns with the global growth forecast cuts for 2023 and 2024 by 10 bps each to 2.8% and 3%, indicating that India may not be as resilient to global turmoil as previously thought. Despite this, India is still projected to be the fastest growing major economy during the forecast period.
The IMF lowered next year’s Asian growth forecast by 20 bps to 4.4% and cautioned against the risks to the outlook, such as higher-than-anticipated inflation, slowing global demand, and the impact of stress in the U.S. and European banking sectors. The IMF also noted that while Asia has strong capital and liquidity buffers to withstand market shocks, the region’s highly leveraged corporate and household sectors are significantly more vulnerable to a sudden and significant increase in borrowing costs.
