IMF’s Managing Director says inflation and China’s economic slowdown pose a risk to Asia
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The Managing Director of the International Monetary Fund, Kristalina Georgieva, has said that the rising inflation and the economic slowdown in China posed a risk to the economic outlook of the entire Asia region. She has also urged policymakers to increase buffers to protect their economies against future shocks.
IMF’s Managing Director warns of a gloomy economic outlook in Asia
The IMF Managing Director is not the only policymaker concerned about the risks facing Asia’s economy. The President of the Asian Development Bank, Masatsugu Asakawa, has urged policymakers in the country to remain vigilant and watch out for any signs that show a rise in capital outflows because of the interest rate hikes in the US.
While speaking in a video message at an ASEAN+3 forum held in Singapore, Asakawa said that the region could be affected by the aggressive interest rate hikes by the US Federal Reserve. The executive said that monetary policy tightening could cause reversals in capital flows and depreciate the currency.
On the other hand, Georgieva said that economies within the Association of Southeast Asian Nations (ASEAN) have a projected growth of 5% in 2022, with the figures expected to moderate next year.
However, she has advocated for caution, saying that the outlook remained uncertain as there were existing risks such as the Ukraine-Russia war, global monetary tightening, and the slowing economic growth in China.
She further stressed that one of the global economy’s main issues was inflation. Inflation levels are expected to average 4% in Asia in 2022. However, inflationary pressures across the region were high.
She also said there was no clarity on when the inflationary pressures would end and whether there would be other shocks in the future. However, she noted there was a need to rebuild buffers.
China’s economic slowdown
China has imposed strict COVID restrictions, which have continued to affect global economic growth while slowing domestic economic activity. These restrictions have also disrupted the global supply chain.
The economic slowdown in China has had far-reaching effects in Asia. Factory activity in the region has slumped while emerging nations are forced to hike interest rates to battle the capital outflows caused by US monetary tightening. However, this is instead hurting these economies.
The governor of the Bank of Japan, Haruhiko Kuroda, who was also present at the forum, said there was no significant risk of a new financial crisis in Asia. However, he has urged Asian countries to preserve and increase their buffers that had decreased due to measures taken to combat COVID.
Kuroda also referred to the recent economic crisis in the UK, saying that market participants react to policy decisions and other announcements that could significantly affect the prices of financial assets. He added that policymakers in the ASEAN region needed to remain vigilant and adopt timely and efficient communication to avoid unintended effects.