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IMF Chief Economist and Director Pierre-Olivier Gourinchas attends a press briefing for the World Economy Outlook update in Singapore on Tuesday. Photo: AFP

China’s reopening will benefit Asia, but balancing inflation and growth will be a challenge: IMF economist

  • The IMF’s Pierre-Olivier Gourinchas believes China’s reopening will provide a global economic boost, most notably in Asia
  • But a challenge for the region will be balancing rising inflation and growth as economies from Singapore to South Korea have witnessed soaring prices
The International Monetary Fund’s chief economist has voiced optimism that there will be positive spillover effects on Asian economies tied to the reopening of China as it exits the Covid-19 pandemic.
In an interview with This Week in Asia in Singapore on Tuesday, Pierre-Olivier Gourinchas said he was “reasonably confident” there would be a rebound in activity in China and current signs – including an uptick in domestic travel – pointed to a “quite strong reopening”.

“This reopening is certainly going to boost the global economy,” the Washington-based economist said. “Of course, it’s going to benefit more countries that are close trading partners of China that includes many Asian economies.”

2023 is going to be the year where one of the main engines of growth is going to be coming from emerging Asia
Pierre-Olivier Gourinchas, IMF chief economist
The IMF raised its global growth forecast for this year by 0.2 percentage points to 2.9 per cent in its outlook report published on Tuesday, citing China’s full reopening and strong spending in the United States. It projected China to record GDP growth of 5.2 per cent in 2023.
In line with that prediction, Asia’s emerging markets – including China and India – will be key drivers of world growth this year, with expectations that the economies of the world’s two most populous nations will make up 50 per cent of total growth.

“2023 is going to be the year where one of the main engines of growth is going to be coming from emerging Asia,” Gourinchas said. “[It] is going to be a year of lower growth for many advanced economies.”

China’s GDP growth to lag behind rest of developing East Asia: World Bank

In Asia, one crucial challenge for governments will be balancing rising inflation and growth. Gourinchas pointed out that a number of economies in the region, such as South Korea, have witnessed soaring prices even as central banks remained firm in tightening their monetary policies.

“This tightening of monetary policy is starting to show some effects but it’s not bringing inflation yet back down to a level that would be comfortable for central banks,” he said.

South Korea’s consumer prices climbed 5.1 per cent in 2022, compared to a year earlier. Singapore’s headline inflation averaged 6.1 per cent last year.

While acknowledging there was “certainly a risk” for central banks to overreact and hurt growth, Gourinchas suggested there were also risks of countries not doing enough, recommending they “keep maintaining monetary policy in a sort of contractionary mode up until the point at which inflation is on a declining path”.

02:24

China records second-lowest economic growth figure in almost 50 years after Covid-ravaged 2022

China records second-lowest economic growth figure in almost 50 years after Covid-ravaged 2022
Amid recent concerns over a spike in energy prices as a result of China’s reopening, the IMF chief economist noted that the opening up of the world’s second-largest economy may put some upwards pressure on prices and increase demand for liquefied natural gas but concerns were relatively muted.

The IMF estimated global growth would contract slightly – from 3.4 per cent last year to 2.9 per cent in 2023 – and the broad slowdown meant the pressures would not be as huge. Futures for energy and other commodities would likely decline through 2023, he said.

India start-up workers brace for lay-offs amid global tech slowdown

Meanwhile, even as tech firms around the world continue to shed headcount, including in some Asian markets, Gourinchas said it was “not particularly worrying”.
One reason behind the recent lay-offs was because tech companies accelerated hiring during the pandemic, and some have found it unsustainable. Even though these lay-offs have made headlines, the industry was still growing and the labour markets in the US and Europe remained tight, he said.

“If somehow [there is] a wave of lay-offs and the number of workers who lose their jobs start surging, then we would have to be concerned about maybe the economy tipping into a recession,” Gourinchas added.

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