Kristalina Georgieva says Southeast Asian economies are “bright spot” in the global economy.
Director of the International Monetary Fund, Kristalina Georgieva, has identified rising inflationary pressures and China’s economic slowdown as risks to Asia’s economic outlook, calling on policymakers to rebuild their buffers against future shocks.
Asian Development Bank President Masatsugu Asakawa also urged Asian policymakers to be vigilant for signs of abrupt capital outflows due to steady rate hikes in the United States.
“We already see the risk of aggressive tightening of US monetary policy to fight inflation, which could lead to abrupt reversals of capital flows or sharp currency depreciation,” Asakawa said in a video message broadcast Friday at an ASEAN+3 forum in Singapore. .
Georgieva said economies that are part of the Association of Southeast Asian Nations (ASEAN) are a “bright spot” in the global economy, with projected growth of 5 percent this year and a slight moderation in 2023.
But she warned that the outlook was “extremely” uncertain and dominated by risks, such as the fallout from Russia’s war in Ukraine, global financial tightening and a slowdown in Chinese growth.
“Another pressing global challenge is inflation. In Asia, this is expected to average just 4 percent this year. But inflationary pressures in the region are mounting,” Georgieva said.
“We don’t know how long this shock will last and if there may be other shocks. But we need to rebuild and maintain buffers and be prepared to use our policy toolkit to the fullest,” she told the same forum.
China’s strict COVID lockdowns have weighed on already slowing global growth by dampening domestic economic activity and disrupting supply chains for manufacturers around the world.
The effects of the slowdown in China have been particularly painful in Asia, where manufacturing activity across the region fell in November.
Some emerging countries have also been forced to raise interest rates to counter capital outflows from US rate hikes, to the detriment of their fragile economies.
Speaking at the forum, Bank of Japan Governor Haruhiko Kuroda said he saw no great risk of Asia facing a sudden loss of confidence or a renewed financial crisis.
But he warned against complacency as some Asian countries saw their policy buffers shrink after deploying large spending packages to counter the COVID-19 pandemic.
“As the recent market turmoil in the UK has shown, market participants’ reaction to policy decisions and announcements can have a significant impact on asset prices,” said Kuroda, former head of ADB and Japan’s chief foreign exchange diplomat.
“ASEAN policymakers must be vigilant” to risks and provide “clear, sufficient and timely communication to avoid unintended outcomes,” he said.