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
“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,” Gourinchas said. “[It] is going to be a year of lower growth for many advanced economies.”
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“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”.
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.
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“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.