APAC growth expected to rise from 3.9% in 2022 to 4.6% in 2023: IMF

China and India are projected to jointly contribute about half of world growth in both 2023 and 2024.

IMF staff estimate that Asia’s growth will slow to 4.2 per cent in 2024 and to 3.9 per cent in the medium term—the lowest in the past two decades except for 2020.

The emerging market economies of the Association of Southeast Asian Nations (ASEAN) are expected to see a growth of 4.2 per cent in 2023 and 4.6 per cent in 2024—a 0.3 percentage point downward revision relative to April.

The downgrade reflects not only weaker external demand, but also lacklusture domestic demand as a result of monetary policy tightening.

In India, however, growth has been revised up to 6.3 per cent in 2023, due to resilient domestic demand and strong investment inflows.

In Asia’s advanced economies, tight financial conditions will hold back demand, while in the emerging markets, relatively accommodative financial conditions will support domestic demand despite monetary policy tightening, but external demand and lackluster investment will be headwinds to growth.

China’s weaker near-term growth outlook will weigh on regional growth. The Chinese economy is expected to expand by 5 per cent in 2023 and by 4.2 per cent in 2024. Compared to the April 2023 World Economic Outlook, this is a downward revision of 0.2 and 0.3 percentage points, respectively.

The latest medium-term growth paths projected for emerging Asia are below pre-pandemic growth trajectories. One reason is lower medium-term growth in China, which is expected to weigh on the outlook for the rest of Asia.

Strong global value chain links to China have translated into strong growth spillovers for the past two decades, which, absent wide-ranging reforms in China, are expected to be weaker.

Growth in Asia’s advanced economies (excluding Japan) is slowing, as tight monetary conditions negatively affect interest-sensitive demand and as external demand remains subdued.

In Australia and New Zealand, where higher mortgage payments have lowered real disposable household income, domestic demand growth is expected to slow further.

Growth in South Korea is projected to slow to 1.4 per cent in 2023, while the same in Japan and Singapore has been revised on account of developments in the first half of 2023: up in Japan, to 2 per cent from 1.4 per cent, and down for Singapore to 1 per cent from 1.5 per cent earlier.

The near-term outlook remains favorable for many of Asia’s frontier markets and small states, supported by lower commodity price pressure and increased tourist inflows.

In Sri Lanka, the economy is bouncing back from the economic crisis, on the back of reduced inflationary pressure and easing foreign exchange pressures.

Growth momentum remains robust in other South Asian frontier market economies (Bangladesh, Bhutan, Maldives, Nepal), with near-term growth exceeding 5 per cent in this region.

The growth outlook varies across Southeast Asia (Cambodia, Lao P.D.R., Myanmar), reflecting a diverse set of economic conditions and challenges.

Inflation is projected to continue the decline toward central bank targets. Except for Japan, inflation is expected to return to within target ranges by the end of 2024. This puts Asia ahead of the rest of the world, which, in general, will not see inflation returning to target until at least 2025.

Even in economies where output is still above potential (Australia, Malaysia, New Zealand), gaps will narrow until 2024, and core inflation is expected to moderate.

In China, where food and fuel prices are expected to increase, the baseline outlook is for a gradual increase in inflation as output gaps close.

In Japan, core inflation has reached a historically high level due to strong domestic demand and rising wages, and it is expected to stay above 2 per cent until early 2025.

ALCHEMPro News Desk (DS)