Asia & Pacific to drive over 70% global growth in 2023: IMF

However, despite the positive outlook, policymakers cannot afford to be complacent. There are still risks to contend with, such as public debt and the persistent challenge of inflation. While global commodity prices have moderated after surging last year and supply chain pressures have eased, inflation remains stubbornly high, and core inflation, which excludes food and energy, has also proven sticky, according to an IMF blog by Krishna Srinivasan and Alasdair Scott.

Asian economies have either already closed or are narrowing their output gaps. Output gaps are indicators of how closely demand is keeping up with the capacity to meet demand, and they also reflect the pressure on prices. This means that the battle to contain inflation is not over, and central banks may need to keep interest rates higher for longer, the authors said.

In addition, there is significant uncertainty about the path of global and regional financial conditions, presenting another challenge. The recent upheavals in certain banks in the US and Europe serve as a warning of the dangers of contagion. Advanced economy banks in Asia are also susceptible to losses from rising wholesale funding expenses and sudden drops in asset market values.

Moreover, domestic vulnerabilities are also evident, with leverage having increased even before the pandemic. The bulk of corporate debt is held by companies that face the possibility of going bankrupt, as well as in select industries like real estate, as per the blog.

In order to avoid financial strain, it is imperative for policymakers to closely monitor potential pressures and establish backup strategies. The authors advised that central banks should use available tools to ease any liquidity constraints in the banking sector, allowing them to continue to tighten policy to address inflationary pressures. To ensure sustainability over the medium term, it may be necessary to adopt a more aggressive fiscal consolidation approach, however, policymakers must find a balance between supporting growth, protecting vulnerable communities, and addressing debt-related concerns.

The authors suggested that the region must prioritise policy initiatives that foster innovation-driven economic development. If utilised efficiently, the green transition can provide the region with numerous innovative opportunities that could serve as new growth drivers. Through research and development investments, entrepreneurship promotion, education strengthening, and digitalisation, Asian countries can cultivate sustainable and long-lasting growth.

Fibre2Fashion News Desk (NB)