Apac growth forecast on track in 2023 but moderating in 2024: IMF

Economic activity in the Asia-Pacific region remains on track to contribute about two-thirds of global growth in 2023, the International Monetary Fund (IMF) said on Wednesday morning (Oct 18).

This is “despite a challenging environment shaped by a global demand rotation from goods to services and synchronised monetary tightening”, the Washington-based fund said in its latest regional economic outlook report for Asia and the Pacific.

The IMF said that it maintains its 2023 growth forecast for the region at 4.6 per cent, which is higher than the 3.9 per cent registered last year. It is projected to moderate to 4.2 per cent in 2024 as China’s property woes continue to weigh on demand throughout the region.

The 4.6 per cent expansion for 2023 makes Asia-Pacific a “relatively bright spot” compared to the global growth forecast of 3 per cent for 2023.

Notably, growth in Asean economies is forecast to be 4.2 per cent in 2023 and 4.6 per cent in 2024, a downward revision of 0.4 percentage point in 2023 and 0.3 percentage point in 2024 from the fund’s World Economic Outlook in April.

“The downgrade reflects not only weaker growth out-turns, but external demand is also weakening and (there is) more lacklustre domestic demand because of waning revenge consumption and monetary policy tightening,” said Krishna Srinivasan, director of the IMF’s Asia-Pacific Department, during a press briefing on Wednesday.

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The 2023 growth forecast for Singapore has been revised down to 1 per cent from 1.5 per cent due to weaker external demand. However, the IMF expects the expansion to pick up in 2024, driven by a strong labour market recovery, and maintains a forecast of 2.1 per cent.

Turning to inflation, the IMF said it expects inflation for all economies in the Asia-Pacific – with the exception of Japan – to fall within central bank targets by the end of 2024. The rest of the world, however, will not see inflation returning to the target ranges until 2025 at the earliest.

Risks to the regional outlook are still tilted to the downside, albeit in a more balanced way compared with its April forecast, it said. 

A weaker-than-expected recovery in China could trigger negative spillovers to its trading partners, especially in countries whose exports are linked strongly to investment or commodity demand in China.

The “abrupt financial tightening” in the US and the Asia-Pacific region would also disrupt growth, especially in highly leveraged economies and sectors, the IMF said.

While more growth is expected in the US and Japan, it is providing less of a boost to the demand in Asia-Pacific than in the past. As global demand is shifting from goods to services, and from foreign to domestic, the demand drag from China is having a more pronounced effect.

On the upside, however, a soft landing for the global economy is becoming more likely, featuring both an accelerated global disinflation and a stronger recovery of domestic demand in each economy.

“This would support a rebound in Asia’s exports and provide scope for monetary easing (to stimulate economic growth) in 2024,” said the IMF.

Medium-term growth in the region is projected to decline to 3.9 per cent, due mainly to China’s structural slowdown and the de-risking between China and Organization for Economic Co-operation and Development (OECD) economies, which have hindered the productivity growth across many other Asian economies. 

The outlook becomes even cloudier due to increased geoeconomic fragmentation in the region, said the IMF. This includes heightened trade restrictions, reduced cross-border portfolio and foreign direct investment flows, and the concentrated availability of critical minerals.

The fund noted that output losses compared to pre-pandemic trends are substantial, and high levels of inequality persist. Several developing economies in the region are either in or close to debt distress and face refinancing risks, it said.

The IMF said that a comprehensive set of reforms in China could potentially boost medium-term growth in the region, especially for smaller and more open economies.

“Strengthening multilateral cooperation and mitigating the effects of fragmentation are vital for Asia’s medium-term outlook,” said the IMF. 

In response to the OECD’s de-risking strategies, the IMF highlighted the urgent need for the region to implement structural policies to boost productivity growth, facilitate the green transition, and secure inclusive and sustained growth.