REGIONAL REPORT
In Australia , according to Dr . Srinivasan , large public investment and robust external demand should provide a lift to growth , but domestic demand is weakening given rising mortgage payments and lower real disposable incomes .
The IMF ’ s growth forecast includes five per cent growth in 2023 and five per cent growth in 2024 for Indonesia , a fast-growing economy in the ASEAN and Asia . Inflation has been brought under control through action by the central bank in raising interest rates . The fiscal stance has been constrained and prudent . The IMF forecast for growth in Bangladesh is set at six per cent in FY ‘ 24 , unchanged from FY ‘ 23 .
“ The economies in ASEAN are expected to see growth of 4.2 * per cent in 2023 and 4.6 * per cent in 2024 , a downward revision of 0.4 percentage points in 2023 and 0.3 percentage points in 2024 relative to our World Economic Outlook in April . The downgrade reflects not only weaker growth out-turns , but external demand is also weakening and more lacklustre domestic demand because of waning revenge consumption and monetary policy tightening . GDP in the Pacific Island countries , with high dependence on tourism , is still more than 10 per cent below pre-pandemic levels with challenges from higher fiscal deficits , elevated debt and shrinking fiscal space ,” highlighted Dr . Srinivasan .
Manufacturing in focus
Even as pressures in China ’ s property sector remains unabated , Dr . Srinivasan emphasized that China ’ s manufacturing PMI showed an expansion of activity in September 2023 . The year-on-year growth of retail sales had also improved , but monthly data are volatile and Dr . Srinivasan advocated caution in the interpretation of short-term fluctuations .
“ Going beyond China , what we see is continued resilience and strength and activity in the services sector in Asia , as evidenced from the PMIs . However , manufacturing activities exhibit weakness across Asia . The persistent downturn of the technology cycle continues to weigh on manufacturing activity in the region ’ s advanced economies . In September , manufacturing activity in Asia ’ s emerging markets , excluding China , also moved into negative territory , reflecting broader weakness in global demand ,” he outlined during the press briefing .
Headline inflation has declined from post-pandemic peaks as global commodity prices have receded and monetary policy bites , albeit with signs of renewed price pressures emerging more recently . Moreover , in a few advanced economies in Asia , core inflation remains sticky due to tight labour markets and positive output gaps . Except for Japan , the IMF expects
The Beijing National Stadium ( China ).
Mitaka Station , Tokyo , Japan ( image : Finan Akbar , Unsplash .)
The persistent downturn of the technology cycle continues to weigh on manufacturing activity in the region ’ s advanced economies
inflation to return to within target ranges by the end of 2024 . “ This puts Asia ahead of the rest of the world , although the risk of more persistent inflation could materialise given recent commodity price spikes , exchange rate changes yet to be fully passed through and tighter labour markets ,” summarised Dr . Srinivasan .
With this in mind , he recommended central banks to ‘ stay the course ’ with policies to ensure that inflation is durably at target and expectations are anchored . With accommodative financial conditions in Asia ’ s emerging markets , he said , there is no urgent need to ease monetary policy .
Financial markets
In its recently published ‘ Asia-Pacific Regional Economic Outlook ’, the IMF emphasises that the region is facing challenges from persistent medium-term output losses and China ’ s structural slowdown , geoeconomic fragmentation and inflation .
“ Financial conditions in advanced Asia have tightened as higher rates take hold , but emerging Asia has seen accommodative financial conditions . However , the recent rise in U . S . long-term yields following the September U . S . Fed meeting has exerted pressures . In the past few weeks , we have seen financial tightening across Asian markets . Longterm local currency sovereign yields , notably in some economies in Asia and Pacific , have increased substantially since the FOMC meeting in September . At the same time , Asian currencies have depreciated across the board , although to a limited extent compared to previous U . S . dollar strengthening episodes ,” continued Dr . Srinivasan .
Financial supervisors in Asia should remain vigilant on systemic risks and calibrate macroprudential measures , given the higher leverage and rates , he cautioned . If financial stress were to emerge , deploying liquidity and other support measures promptly ( while modernising resolution frameworks ) would be important .
In answer to press questions , Dr . Srinivasan also highlighted the importance of medium-term priorities . and structural reforms geared
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