SINGAPORE: Growth in the Asia and Pacific region is expected to slow down in 2022 and 2023 as the region is facing three formidable headwinds "which may prove to be persistent", according to the International Monetary Fund (IMF).
The major financial agency of the United Nations headquartered in Washington listed the three headwinds as global financial tightening, the war in Ukraine, and the sharp and uncharacteristic slowdown of the Chinese economy.
This challenging conjuncture poses difficult trade-offs for policymakers, it said.
"Asia's strong economic rebound early this year is losing momentum, with a weaker-than-expected second quarter," said director of the IMF's Asia and Pacific Department, Krishna Srinivasan, at a hybrid press conference on the release of "The Regional Economic Outlook, Asia and Pacific: Sailing into Headwinds" report here today.
"We have cut growth forecasts for Asia and the Pacific to 4.0 per cent this year and 4.3 per cent next year, down by 0.9 and 0.8 percentage points respectively, compared to the April World Economic Outlook, which are well below the 5.5 per cent average over the last two decades," he said.
According to the IMF, while inflation rose more modestly in Asia during 2021 than it did in other regions, the sharp bout of volatility in global commodity markets after Russia's invasion of Ukraine in February put additional pressure on Asia's headline inflation in the first half of 2022.
This increase has been driven by rising food and fuel prices - particularly in Asian emerging markets and developing economies - but also reflects higher core inflation as the region recovers, it said.
Against this backdrop, Srinivasan stressed several priorities for policymakers with one of them being "further tightening of monetary policy will be required to ensure that inflation returns to target and inflation expectations remain well anchored".
Srinivasan said fiscal consolidation is needed to stabilise public debt and support the monetary policy stance. Asia is now the largest debtor in the world besides being the biggest saver, and several countries are at high risk of debt distress.
"Public and private debt dynamics are already worse following the pandemic because of slower growth and higher debt levels. Depreciations and rising interest rates could expose financial vulnerabilities from high leverage and unhedged balance sheets and further raise public debt ratios.
"As interest rates rise, this will raise the fiscal balance needed to stabilise debt. An integrated approach to tackling these challenges in a timely and well-calibrated way is of the essence while being mindful of further downside risks," he said.
To a question on the need for Malaysia to aggressively increase the policy rate to narrow the differential with the US, IMF's Division Chief of Regional Studies, Asia and Pacific Department, Shanaka Peiris noted that "Bank Negara Malaysia has moved quite fast even before inflation went up above the target bands".
"Given the persistence of core inflation and some other factors we are seeing, you would expect many other countries in the region to stay on the course to bring down inflation to below target by 2024 as we project at the moment."