Bloomberg: IMF Asia Pacific Chief Says China Compensating for Slower US, Europe

Krishna Srinivasan, Asia Pacific director of the International Monetary Fund, discusses the outlook for the region’s economies. The IMF trimmed its global-growth projections, warning of high uncertainty and risks as financial-sector stress adds to pressures emanating from tighter monetary policy and Russia’s invasion of Ukraine. Srinivasan speaks on the sidelines of the World Bank and IMF’s spring meetings in the US with Kathleen Hays and Haidi Stroud-Watts on “Bloomberg Daybreak: Australia.”

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Transcript

It must be really nice to be an Outlook or like and I’m like Outlook where you look at the rest of the world and you look at the Asia broadly APAC region is the brighter spot this year absolutely we have Asia growing at 4.6 percent this year it’s a revision of 0.3

Percentage points compared to our October World economic Outlook and that’s largely driven by what’s happening to emerging markets in Asia led by China where we advise a good forecast from 4.4 percent in October to 5.2 percent in in 2023 so that’s the big change in the numbers here and what’s

The change in the fundamentals the fundamentals the thing is in in China what we’ve seen is you know we had uh when an uncharacteristics slow down uh earlier now we have China rebounding but much faster than it anticipated so both mobility and consumption are presented to grow faster than we had expected in

October of last year and that’s fundamentally different to what we had before but what is also uh true is that the external headwinds from slowing growth in the U.S and Europe continue to weigh on prospects for Asia so where both U.S and Europe account for 20 of Asia’s exports they are slowing so

That’s an offset but China is compensating for that so but higher growth Krishna we saw in the first 10 days of South Korea’s trade numbers extremely extremely weak when it comes to external demand so what does that tell you about the risks to the region particularly if you overlay the risks coming from

Increased geopolitical tensions between the US and China sure again one has to put things in perspective external demand is weak coming from yours and Europe for Asia that’s being offset by what’s happening in China but going beyond that there are these rising of geofragmentation risks which for Asia

Can mean a lot because Asia is one region which is highly integrated benefited a lot from globalization and if these fragmentation risks arise that could be a significant problem for Asia down the road what about debt because clearly in the right environment that we’ve been looking at for emerging markets one of

The biggest issues has been debt reservicing and then you roll in China as well do you see risks in that sphere sure see if you look at the debt in Asia Asia’s share of debt has risen from uh 25 pre-pandemic to 38 right and that share that debt reflects both an

Increase in public debt and also debt of households and non-financial corporates so to the extent that interest rates remain high that can have a significant bearing on prospects for uh countries in Asia I want to ask you about the banking crisis right it started in the U.S it

Spread to Europe uh when the world economic Outlook broadly released today that is the the downside risk uh Felipe Medallia who’s the governor of the Central Bank of the Philippines was on with us just yesterday and when we were talking afterwards he said you know he’s the reason that Asian central banks are

Not con concerned in that regard is because of all the lessons they learn in the 97-98 financial crisis do you agree with that view that that isn’t the same kind of risk broadly in the Asian region or do you think there are still Financial stability risks there too so

Again if you look at the financial turmoil in Europe and in the U.S the impact of that on Asia has been limited and that spot that largely reflects the fact that policy makers in both Europe and U.S took a very aggressive response towards turmoil and that kind of limited

Uh negative sentiment of markets now if you go beyond that if you look at what Asian countries have done since the Asian financial crisis there’s been an improvement in both macroeconomic fundamentals and institutional Frameworks if you look at the exchange rates are much more flexible they have monetary policy Frameworks which are

Much more modern many of them are inflation targeting Frameworks there excellent accounts are much more robust large reserves so in in many ways the macro fundamentals and institutional Frameworks are better than what we had during the Asian financial crisis that said one has to be

Um you know one has to be careful one has to be humble in saying the fact that risks arise anywhere and so one has to be monitoring these carefully both in terms of interest rate risks exchange rates and so on so one has to monitor that carefully and address that if it

Arises well it’s a very big player powerful powerful economy in the Asian region and you’ve revised your outlook for them what do you see now what’s this based on so your device our projection for India very marginally from 6.1 percent to 5.9 percent and that largely reflects a

Slowdown in consumption growth what we used to call as Revenge consumption that is subsiding so but that said investment continues to be pretty good and services exposed from India are booming not to saying the fact that growth in the U.S and Europe is slowing so that’s again

Tells you that Asia is still sorry India is still a relative bright spot in the global landscape sticky inflation aggressive central bank rate hikes this is all but Universal now uh how does that how big of a risk it seems that Emerging Markets Asian Nations many

Of them are in a better position than many developed countries so again when we look at inflation we had to look at a fact that headline inflation is moderating in Asia however core inflation is still very much sticky and there are forces at play which could make this sticky and what are those

Forces one is we see output Gap in many countries of either close or are closing and number two exchange rate pass through is still a factor at play and what we have found in our analysis is when inflation is high pass through is also that much higher so we can we can

See that core inflation could be sticky and that implies that central banks still have to guard against uh you know inflation runaway inflation so it it’s important for central banks so address inflation head-on you you mentioned the case of the Philippines right Philippines is one country where they have raised interest rates very

Aggressively by 425 basis points that’s not the case for other countries in the region where interest rates have been more modest Christian when you take a look at the short and the medium term risks around the region what are you focusing on the most is it sort of demographic

Challenges for the likes of China or is it fragmentation Joe politically or are you looking more at shorter term risks like a credit event given what we’ve seen in the US and Europe so again both there are both short-term risks and a medium to long-term risks in

The short term the risks of course come from external factors for Asia’s further slowing of Europe and U.S which account for a large part of Asia’s exports going beyond the near term there are significant medium-term risks one of course is China Where We rise a medium-term growth forecast to below

Four percent and there again is a question of productivity it’s a question of Aging population and that’s that’s one the other is of course a geofragmentation risk so when fragmentation risks have risen quite sharply over the last five years and have been accentuated by the war in

Ukraine if those risks rise then issue risks to lose the most among all the regions in the world

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