The International Monetary Fund expects that China and India will provide more than half of this year’s global growth, highlighting the strength of the Asia-Pacific region amid growing economic skepticism regarding the United States.
The Asia-Pacific region’s real gross domestic product is expected to grow 4.6% in 2023, up 0.3 percentage points from the IMF’s earlier prediction made in April. The global economy is predicted to grow by 2.8%.
According to the IMF, China will account for 34.9% of global growth and India for 15.4%. These total 50.3%.
As Western development slows, the Asia-Pacific area as a whole is predicted to provide around 70% of worldwide international economic growth. This is “a much larger share than we’ve seen in the past few years,” said Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, during a press conference on Tuesday.
According to the IMF, China will make the biggest contribution to growth. The country’s 2023 expected growth was raised by the organization in April by 0.8 points to 5.2%.
The world’s second-largest economy is enjoying a recovery in consumer spending thanks to the recent end of rigid zero-COVID policies. The IMF sees consumption, rather than investment, as the big driver of Chinese growth this year.
Neighboring countries will also enjoy a spillover effect. Vietnam and Cambodia are benefiting from inflows of Chinese tourists and growing exports to China.
According to Srinivasan, a 1-point increase in China’s growth corresponds to a 0.3-point increase in the medium- to long-term growth of China’s neighbors.
On the other hand, in April, China’s official manufacturing PMI dropped below the 50% boom-or-bust line. The real estate industry, whose growth last year was a drag, should be supported, according to Srinivasan, who highlighted the threats to the country’s economy.
India’s growth prediction for 2023 was lowered by the IMF in April by 0.2 points to 5.9%. It blamed weakening domestic demand, but according to Srinivasan, growth is still robust.
For 2024, the organization projects the Asian-Pacific economy to grow 4.4% — a downgrade of 0.2 points from the previous outlook. Global demand will slow, partly due to the negative impact of faltering Western economies, which will weigh on overall economic growth, according to the IMF.
Because of elevated core inflation, which excludes food and energy prices, the IMF sees countries facing the difficult task of reconciling monetary tightening with policies that promote economic growth.
At the news conference on Tuesday, China’s hidden dangers and difficulties were discussed. The massive China Evergrande Group, a developer of real estate, was declared in default in 2021, upsetting the nation’s real estate industry. The government’s intervention to support businesses since last year has helped the sector recover.
However, smaller and mid-sized developers are still having difficulties, as are less developed areas. The Chinese government should assist efforts to remedy the uneven recovery, according to the IMF.
China is battling fundamental problems, including an aging population and these challenges. According to Srinivasan, if China adopts measures like raising the retirement age, its potential growth rate might increase by one percent.
The United States has been dealing with a number of regional bank failures, including the demise of First Republic Bank. Despite growing stress in the global banking industry, Srinivasan said the impact on the Asian market has been relatively small so far.
