IMF cuts forecasts for Asia, warns region will be worst-hit

The International Monetary Fund has cut its growth forecasts for Asia and the Pacific to 4.0 percent this year and 4.3 percent next year, compared with its 4.9 percent and 4.8 percent projections in April, respectively.

The IMF attributed the expected slower growth to monetary policy tightening to fight inflation, Russia’s prolonged war in Ukraine and a “sharp and uncharacteristic slowdown” in the Chinese economy.

The IMF also warned of economic scars on the region left by the coronavirus pandemic, which has led to lower levels of investment and is expected to provoke a long-term fall in output compared with pre-pandemic projections.

“This scarring is expected to be worst in Asia and Pacific,” the organization said in a statement on its Regional Economic Outlook for Asia and Pacific.

The “severe scarring expected in Asia partly reflects the region’s high debt levels, which hamper the recovery in investment,” the report said.

China’s economic growth is expected to slow from 8.1 percent last year to 3.2 percent in 2022, the IMF said, citing the impact of China’s strict COVID-19 lockdowns. In April, the IMF had forecast 4.4 percent growth for this year.

Spillovers from the Chinese slowdown are expected to be felt across the rest of Asia through trade and financial links, with impacts likely to be more pronounced for countries with higher exposure to China through exports.

The IMF also laid out a scenario in which if the world is divided into separate trading blocs, such as between Western nations and China and Russia, countries in the Asia-Pacific region would see an annual loss of 3.3 percent in gross domestic product.

Losses would be larger in countries such as South Korea and Vietnam that have significant trade with the other trading bloc because they lose access to export markets and face splintered production networks.

“A sharp fragmentation scenario, in which the world divides into separate trading blocs, would carry large, permanent output losses that are especially high for Asia, given its significant role in global manufacturing and trade,” the report said.

-Ranjith Perera-