Asia and the Pacific region is a relative bright spot amid the more sombre context of the global economy’s rocky recovery. As the International Monetary Fund (IMF) chart below shows, the region will contribute about 70% of global growth this year – a much greater share than in recent years. And of course, Australia’s proximity to the region is a huge advantage for our economy.
Source: IMF
The IMF notes in a recent report the resilience of the world’s most dynamic region. Growth in Asia and the Pacific is forecast to accelerate to 4.6% this year from 3.8%.
The main development has been the reopening of China, where surging consumption is boosting growth across the region despite weaker demand from the rest of the world. Risks to the outlook include spillovers from greater-than-expected US monetary policy tightening and supply chain disruptions associated with geo-economic fragmentation.
But the region also faces important challenges. In the short term, monetary and fiscal policies will need to remain tight to bring inflation back to central bank targets and stabilise public debt. While Asia’s financial systems haven’t seen major impacts following recent banking turmoil in the US and Europe, they need to be carefully monitored given the high leverage among households and corporates.
In the longer term, the Chinese economy which has been the primary engine of regional and global growth for decades is expected to slow considerably in the face of unfavourable demographics and a productivity slowdown. As the IMF advises, the region should prioritise structural reforms to boost long-term growth, while accelerating the green energy transition.
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