Asia Sails Into Headwinds From Rate Hikes, War, China Slowdown: IMF

Amid fear of global recession, the Asian economy is sailing into headwinds from rate hikes, war and China's slowdown, said the International Monetary Fund on Friday. 

The IMF in a blog wrote that growth forecasts have been lowered for this year and next, while inflation exceeds central bank targets in most countries. 

"Asia’s strong economic rebound early this year is losing momentum, with a weaker-than-expected second quarter," it said. 

The international body has cut growth forecasts for Asia and the Pacific to 4 per cent this year and 4.3 per cent next year, which are well below the 5.5 per cent average over the last two decades. 

Despite this, Asia remains a relative bright spot in an increasingly dimming global economy, it added. 

"A sharp tightening of financial conditions, which is raising government borrowing costs and is likely to become even more constricting, as central banks in major advanced economies continue to raise interest rates to tame the fastest inflation in decades," it read. 

The IMF also stated that rapidly depreciating currencies could further complicate policy challenges.

Russia’s invasion of Ukraine is still raging and continues to trigger a sharp slowdown of economic activity in Europe which will further reduce external demand for Asian exports. 

It also said that China’s strict zero-Covid-19 policy and the related lockdowns, which, coupled with a deepening turmoil in the real estate sector, has led to an uncharacteristic and sharp slowdown in growth, that in turn is weakening momentum in connected economies.

"After near-zero growth in the second quarter, China will recover modestly in the second half to reach full-year growth of 3.2 per cent and accelerate to 4.4 per cent next year, assuming pandemic restrictions are gradually loosened," it added.