Global headwinds: What lies ahead for Asia?

IN THE International Monetary Fund’s recently released Regional Economic Outlook for Asia and the Pacific, growth prospects for the region were downgraded for the next two years. Following a robust 6.5 per cent post-Covid recovery in 2021, the IMF now forecasts the region to grow at a slower pace of 4 per cent in 2022 and 4.3 per cent in 2023, which is a fair bit lower than the average 5.5 per cent growth experienced over the last two decades.

The growth downgrade is attributable to several headwinds facing the global economy, including the strict dynamic zero-Covid policy and slow-motion real estate crisis in China, the economic impact of the prolonged geopolitical tensions due to the Ukraine war, and the aggressive rate hikes by the US Federal Reserve and consequent reversal of capital flows from emerging markets in Asia and elsewhere.

As most Asian currencies have tumbled against the US dollar this year, central banks have intervened to stabilise their currencies. The sizeable foreign exchange interventions and corresponding rapid depletion of reserves have even prompted comparisons to the Asian financial crisis (AFC) some 25 years ago.