TOKYO (REUTERS) - The Asian region faces a “stagflationary” outlook, a senior International Monetary Fund (IMF) official warned on Tuesday (April 26), citing the war in Ukraine, a spike in commodity costs and a slowdown in China as creating significant uncertainty.
While Asia’s trade and financial exposures to Russia and Ukraine are limited, the region’s economies will be affected by the crisis through higher commodity prices and slower growth in European trading partners, said Ms Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia and Pacific Department.
Moreover, she noted that inflation in Asia is also starting to pick up at a time when China’s economic slowdown is adding to pressure on regional growth.
“Therefore, the region faces a stagflationary outlook, with growth being lower than previously expected and inflation being higher,” she told an online news conference in Washington.
The headwinds to growth come at a time when policy space to respond is limited, said Ms Gulde-Wolf, adding that Asian policymakers will face a difficult trade-off of responding to slowing growth and rising inflation.
“Monetary tightening will be needed in most countries, with the speed of tightening depending on domestic inflation developments and external pressures,” she said.
The United States Federal Reserve’s expected steady interest rate hikes also present a challenge to Asian policymakers given the region’s huge dollar-denominated debt, Ms Gulde-Wolf said.
In its latest forecast issued this month, the IMF said it expected Asia’s economy to expand 4.9 per cent this year, down 0.5 percentage point from its previous projection made in January.
Inflation in Asia was now expected to hit 3.4 per cent in 2022, 1 percentage point higher than forecast in January, it said.
A further escalation in the war in Ukraine, new Covid-19 waves, a faster-than-expected Fed rate hike trajectory and prolonged or more widespread lockdowns in China are among risks to Asia’s growth outlook, Ms Gulde-Wolf said.
“There is significant uncertainty around our baseline forecasts, with risks tilted to the downside,” she added.