IMF warns inflationary pressures, China slowdown as Asian outlook worsens

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IMF warns inflationary pressures, China slowdown as Asian outlook worsens

TOKYO Reuters International Monetary Fund Managing Director Kristalina Georgieva warned of rising inflationary pressures and China's economic slowdown as risks to Asia's economic outlook, calling for policymakers to rebuild their buffers against future shocks.

Asian Development Bank President Masatsugu Asakawa urged Asia's policymakers to be vigilant to signs of a sudden capital outflow due to steady U.S. interest rate hikes.

Asakawa said in a video message broadcast at the ASEAN 3 forum in Singapore on Friday that there was already the risk of a tighter U.S. monetary policy to fight inflation.

Georgieva said that the economies including the Association of Southeast Asian Nations ASEAN are a bright spot in the global economy, with growth projected at 5% this year and moderating slightly in 2023.

She warned that the outlook was exceptionally uncertain and dominated by risks, such as Russia's war in Ukraine, global financial tightening and a slowdown in China's growth.

It is expected to average only 4% in Asia this year. Inflation pressures in the region are rising, Georgieva said.

We don't know how long this shock will last and whether other shocks will come. She told the forum that we need to rebuild and preserve buffers and be prepared to fully use our policy toolkit.

China's strict COVID lockdowns have weighted on already slowing global growth by dampening domestic economic activity and disrupting supply chains for manufacturers across the world.

In Asia, where factory activity fell in November, the fallout of China's slowdown has been particularly painful.

Some emerging nations have been forced to raise interest rates to fight capital outflows caused by U.S. rate hikes, at the cost of hurting their fragile economies.

At the forum, Bank of Japan Governor Haruhiko Kuroda said he did not see a major risk of Asia facing a sudden loss of confidence or a renewed financial crisis.

He warned against complacency, as Asian countries saw their policy buffers shrink after deploying big spending packages to counter the COVID-19 epidemic.

As the recent market turmoil in the United Kingdom has shown, the reaction of market participants to policy decisions and announcements could have a significant impact on asset prices, said Kuroda, who was formerly head of the ADB and Japan's top currency diplomat.

ASEAN policymakers must be vigilant to risks and provide clear, sufficient and timely communication to avoid unintended consequences, he said.