The International Monetary Fund (IMF) predicts that despite the difficulties facing the global economy, Asia and the Pacific will continue to be a vibrant region. The region is anticipated to provide more than 70% of worldwide growth this year, and by 2022, it is anticipated that its growth will have accelerated to 4.6% from 3.8%. The demand for consumer goods will have the most impact as a result of China’s openness. Other growing economies in the region are anticipated to experience strong growth as well.
Nevertheless, authorities cannot afford to be complacent despite the promising prognosis. There are still dangers to be aware of, such as the ongoing problem of inflation and public debt. Despite a slight decline in commodity prices globally According to a blog post by Krishna Srinivasan and Alasdair Scott for the International Monetary Fund, inflation has remained persistently high despite rising last year and supply chain pressures easing.
Asian economies’ output gaps have either already closed or are getting smaller. The pressure on prices is also reflected in output gaps, which show how closely demand is keeping up with ability to meet need. This indicates that the fight to control inflation is not done, and central banks may need to maintain higher interest rates for a longer period of time, according to the authors.
Another difficulty is the degree of uncertainty surrounding the direction of the regional and global financial conditions. The recent changes to some banks in The US and Europe act as a cautionary tale about the risks of contagion. Asian banks with advanced economies are similarly vulnerable to losses due to growing wholesale finance costs and unexpected declines in asset market values.
Additionally, it is clear that there are domestic vulnerabilities as well, with leverage rising even before the pandemic. According to the site, businesses that are at risk of bankruptcy and some specific industries, like real estate, hold the majority of corporate debt.
Policymakers must continuously monitor potential pressures and set up backup plans in order to prevent financial strain. In order to continue tightening policy, the authors suggested that central banks should use their current instruments to alleviate any liquidity restrictions in the banking sector. deal with the inflationary pressures. Although a more aggressive fiscal consolidation strategy may be required to maintain sustainability over the medium term, policymakers must strike a balance between promoting growth, safeguarding disadvantaged groups, and resolving debt-related issues.
The authors recommended that the area give policy efforts that support innovation-driven economic development first priority. The green transition can provide the area a variety of creative alternatives that could act as new growth drivers if used well. Asian nations can foster sustainable and long-lasting growth through investments in R&D, entrepreneurial promotion, education strengthening, and digitalization.
