Rising inflationary pressure, the spread of the Omicron variant of the coronavirus as well as a sharp slowing in China is clouding the growth propects of Asia. In its latest update of the World Economic Outlook on Tuesday, the International Monetary Fund (IMF) downgraded its 2022 growth forecasts for emerging and developing Asia to 5.9%, down from the October projections of 6.4%. Growth estimates for 2021 were also cut to 7.2% from an earlier predicted 7.5% in October. For 2023 the IMF now expects a growth of 5.8% for the region.
China’s zero-Covid strategy has contributed to a slowdown in Asia, the IMF said. “This strategy could exacerbate global supply disruptions, and if financial stress in the country’s real estate sector spreads to the broader economy the ramifications would be felt widely,” wrote Gita Gopinath, the First Deputy Managing Director of the IMF.
Furthermore inflation concerns are glooming the outlook. “Inflation is expected to remain elevated in the near term”, the report says. The Washington-based institution therefore revised its 2022 inflation forecasts up, averaging 3.9% in advanced economies and 5.9% in emerging market and developing economies, before subsiding in 2023.
Also expected interest rate hikes by the US Federal Reserve may delay emerging Asia’s economic recovery, according to Changyong Rhee, director of the IMF’s Asia and Pacific Department.
He told Reuters: “We are not expecting a US monetary normalization to cause big shocks or large capital outflows in Asia, but emerging Asia’s recovery may be retarded by the higher global interest rates and leverages.”
China and US slow down global growth
The global economy is entering 2022 in a weaker position than anticipated, according to the IMF. In 2021, the global economy grew an estimated 5.9%. For this year the IMF expects an expansion of 4.4% (down 0.5 percentage point from its October forecast). The downgrade for 2022 was largely led by forecast markdowns in the two largest economies, the US and China.
Amid continued retrenchment of the real estate sector and a weaker-than-expected recovery in private consumption in China, the IMF induced a 0.8 percentage-point downgrade in China’s 2022 growth estimate to 4.8%. For 2021, China’s GDP growth is projected at 8.1%, slightly higher than the earlier estimate of 8.0% in October.
The 2022 projection for the ASEAN-5 group, consisting of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam was revised down slightly from 5.8% to 5.6%. But, 2021 year’s growth was revised up to 3.1% from the previous projection of a 2.9% expansion made in October.
Among the major ASEAN nations, the Philippine economy is expected to gain the biggest growth this year with 6.3%, unchanged from the October forecast. Malaysia’s outlook was revised up by 0.3 percentage point to 5.7%. Indonesia’s GDP growth is estimated to reach 5.6% and Thailand’s projections are down by 0.4 percentage point to 4.1% for 2022.
For the advanced economies in Asia, the IMF forecast sees Japan’s economic growth at 3.3% this year. Meanwhile, Australia growth projections are unchanged at 4.1% for 2022. South Korea’s economy is expected to grow 3%.
India, in the meanwhile, will be the fastest-growing economy in 2022, as per the IMF’s World Economic Outlook, with a projected GDP growth at 9%, more than any other large economy.