IMF warns Asia facing ‘stagflationary outlook’

WASHINGTON

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 has said.

“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, impacted by the slowdown in China, which is having ripple effects on other closely-linked economies.

Inflation is now expected to rise 3.2 percent this year, a full point higher than expected in January, she said.

“Despite the downgrade, Asia remains the world’s most dynamic region, and an important source of global growth,” Gulde-Wolf said in remarks prepared for delivery to a press briefing.

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.”    

“This a challenging time for policymakers as they try to address pressures on growth and tackle rising inflation,” the IMF official said, noting that the headwinds will exacerbate the damage from the COVID-19 pandemic.

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.

“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 fund economists said in a blog post.