Reuters - The International Monetary Fund on Tuesday warned that a fresh wave of COVID 19 infections, supply chain disruptions and inflation pressures pose downside risk for Asia and to the outlook slashed the forecast for next year.
China's economy will grow from 8.0% this year and 5.6% in 2022, but the recovery remains unbalanced as repeated coronavirus outbreaks and fiscal tightening weigh on consumption, it said.
Any untimely policy normalization or poor policy communication by the IMF could also trigger significant capital outflow and higher borrowing costs for Asian emerging economies, the Federal Reserve said.
In its regional outlook report, the IMF cut the forecast of economic growth for Asia to 6.5%, down 1.1 percentage point from its projection made in April, as a spike in Delta variant cases hit consumption and factory output.
The IMF raised its Asia growth forecast for 2022 to 5.7% from a 5.3% estimate in April, reflecting progress in vaccinations.
Although Asia and Pacific remains the fastest growing region in the world, the divergence between emerging economies and Asian advanced economies is deepening, the report said.
Risks are tilted to the downside, mainly on uncertainty over the pandemic, supply chain disruptions and potential spillovers from U.S. policy normalisation, it said.
China's economy hit its slowest pace of growth in the third quarter in a year, highlighting the challenge policymakers face as they seek to rein in a collapsed recovery while stabilizing the real estate sector.
India is expected to grow 9.5% this year, while advanced economies like Australia, South Korea, New Zealand and Taiwan benefit from high-tech and commodity booms, the IMF said.
But ASEAN -- 5 countries - Indonesia, Malaysia, Singapore, Thailand - face severe challenges from a resurgent virus and weakness in service consumption, it said.
Over the coming months, new infection waves remain the biggest concern, the IMF said.
While inflation expectations are generally well-anchored in Asia, higher commodity prices and shipping costs, coupled with persistent disruption of global value chains, amplify fears over persistent inflation.
Most Asian emerging economies must maintain monetary support to ensure a lasting recovery, but Central banks should be prepared to act quickly if the recovery strengthens faster than expected or if inflation expectations rise, it said.