IMF warns of a cloudier picture for Asia’s economies

The International Monetary Fund (IMF) warned of a cloudier picture for Asia’s formerly fast-growing region, citing China’s slow recovery and the potential of a more protracted housing crisis.

China’s post-lockdown economic rebound slowed sooner than predicted, according to the IMF.

Meanwhile, the IMF stated in a blog on the region’s prospects that the strength of the US economy has provided less help to Asia than in the past since it has been centered on the service sector, which does not boost demand for exports.

“In the short term, the abrupt adjustment in China’s deeply indebted property sector and the ensuing slowdown in economic activity would most certainly spill over to the region, particularly to commodity exporters with close trade linkages to China,” the IMF report showed.

“On the negative side, a longer-lasting real estate crisis and China’s limited policy response would exacerbate the regional slump,” the IMF added.

In its World Economic Outlook, issued this week during the annual IMF meetings in Marrakech, the IMF reduced Asia’s growth prediction for next year to 4.2%, down from 4.4% in April and 4.6% this year.

“Whenever China slows, it has an impact on the global economy, particularly Asia,” Krishna Srinivasan, head of the IMF’s Asia and Pacific Department, said during a press conference in Marrakech.

While Asia’s inflation is cooling faster than the rest of the globe, central banks should not hurry to slash interest rates since core inflation remains “a little sticky,” according to Srinivasan.

“Central banks should stick to their guns; the Middle East crisis might be one of the causes driving higher prices,” Srinivasan added.

The IMF blog stated that changes made by Japan’s central bank to its bond yield control policy resulted in wide market “spillovers” due to the greater involvement of Japanese investors in the global bond market.