The International Monetary Fund (IMF) has indicated that Asia’s economic growth is likely to exceed the global average over the next two years. This projection comes amid concerns about rising inflation driven by an oil shock linked to ongoing conflicts in the Middle East. Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, emphasised the necessity for central banks in the region to maintain a focus on price stability.

During a press briefing in Bangkok on Thursday, coinciding with the IMF-World Bank Annual Meetings, Srinivasan stated that central banks must be prepared to adjust interest rates if inflation expectations become unanchored or if price pressures persist. He stressed that monetary policy should prioritise price stability to mitigate risks associated with inflation.

Srinivasan noted that while near-term inflation expectations have risen due to oil shocks, long-term expectations remain relatively stable. He urged central banks to communicate effectively and uphold their independence, especially as governments react to the economic impacts of increased energy prices.

Regional Growth Contributions and Variations

The IMF’s forecasts suggest that Asia’s growth will decelerate from 5 per cent in 2025 to 4.8 per cent in 2026 and further to 4.4 per cent in 2027. These figures, however, are more optimistic than previous projections made in April, which estimated growth at 4.4 per cent for 2026 and 4.2 per cent for 2027. Despite challenges such as elevated energy costs and trade disruptions, Asia is expected to contribute over two-thirds of global growth.

India’s growth outlook has also seen an improvement, with projections set at 7 per cent for both 2026-27 and 2027-28. This is 0.5 percentage points higher than earlier forecasts. Srinivasan remarked that growth in India has exceeded expectations, with similar upgrades noted for South Korea and other technology-exporting nations.

However, the economic outlook varies across the region. Countries less integrated into the technology sector, including low-income nations like Cambodia and Bangladesh, have experienced downward revisions in their growth forecasts, highlighting the uneven nature of recovery in Asia.

Monetary Policy Challenges Ahead

The IMF has stated that monetary policy decisions will hinge on the inflation outlook and the impacts of energy shocks and technology investments. Economies closely tied to technology supply chains face a stronger case for tighter monetary policy, particularly where inflation rates were already above target prior to the Middle East conflict.

Conversely, energy-importing nations outside these supply chains, where inflation remains at or below target, may adopt a more cautious approach. The IMF has advised that monetary policy should be sufficiently stringent to ensure inflation returns to target levels promptly, with further tightening possibly necessary in response to rising commodity prices and technology-related inflationary pressures.

Three significant factors influencing Asia’s economic outlook have been identified: the energy shock initiated in February, the technological advancements driven by artificial intelligence, and trade disruptions following tariff increases in 2025. The region’s reliance on oil and gas imports from the Middle East has heightened vulnerability to fluctuating energy costs.

Fiscal Risks and Reform Priorities

Srinivasan has warned that Asia’s resilience has limitations, citing constrained inventories and escalating fiscal costs associated with government support measures. Public debt levels remain elevated compared to pre-pandemic figures, with limited scope for increased governmental spending.

The IMF has suggested that support for households and businesses affected by economic shocks should be targeted rather than aimed at artificially suppressing prices. The organisation has also highlighted potential risks to the economic outlook, including prolonged tensions in the Middle East and fiscal vulnerabilities.

To address these challenges, the IMF has outlined four key reform priorities for Asia: tackling youth unemployment and skill gaps, enhancing social protection, improving energy security, and fostering regional integration. The Fund’s analysis indicates that the nature of work is evolving due to AI, necessitating a shift in workforce skills.

Long or Short, get news the way you like. No ads. No redirections. Download Newspin and Stay Alert, The CSR Journal Mobile app, for fast, crisp, clean updates!

App Store – https://apps.apple.com/in/app/newspin/id6746449540

Google Play Store – https://play.google.com/store/apps/details?id=com.inventifweb.newspin&pcampaignid=web_share