Asian nations, like the rest of the world, are being battered by countervailing forces such as the war in Ukraine that are raising prices while holding back growth, the IMF said on Monday.
“The region faces a stagflationary outlook, with growth being lower than previously expected, and inflation being higher,” said Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia and Pacific Department.
The regional outlook, which follows the World Economic Outlook released last week, shows the growth forecast for Asia was cut to 4.9 percent, affected by the slowdown in China, which is having ripple effects on other nations with economic close ties to Beijing.
Inflation is now expected to rise 3.2 percent this year, a full point higher than expected in January, Gulde-Wolf said.
“Despite the downgrade, Asia remains the world’s most dynamic region, and an important source of global growth,” she said in remarks prepared for delivery to a press briefing.
However, the Russian invasion of Ukraine and Western sanctions on Moscow have driven up food and fuel prices worldwide, while major central banks are raising interest rates to combat inflation, which will pressure countries with high debt loads.
A larger-than-expected slowdown in China due to prolonged or more widespread COVID-19 lockdowns or a longer-than-expected slump in the property market presents “a significant risk for the region,” Gulde-Wolf said.
“This a challenging time for policymakers as they try to address pressures on growth and tackle rising inflation,” she said, adding that the headwinds would exacerbate the damage from the COVID-19 restrictions.
Outlooks vary within the region, depending on countries’ reliance on imported energy and links to China, with growth in Pacific island nations slowing sharply, while Australia saw a slight upgrade, she said.
Governments would need strong responses, starting with targeted aid to poor families most harmed by higher prices, the IMF said.
Many will need to tighten monetary policy amid rising inflation, while those with high debt loads might have to cut spending and even seek debt relief, she said in a blog post.
“Slower growth and rising prices, coupled with the challenges of war, infection and tightening financial conditions, will exacerbate the difficult policy trade-off between supporting recovery and containing inflation and debt,” the post said.
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