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Improved prospects foreseen for soft landing in Asian economies: IMF

IMF's report signals potential monetary easing in Asian economies for 2024 with declining inflation trends.

AFP

The region's growth is likely to slow to 4.3 percent in 2025 due largely to an expected slowdown in China's economy, IMF's director for Asia and Pacific says. / Photo: AFP

Asian central banks may see scope to loosen monetary policy later this year as inflation moderates, heightening prospects for a soft landing in the region's economies, the International Monetary Fund said.

Average inflation in Asia fell to 2.6 percent in 2023 from 3.8 percent in 2022, with particularly swift progress in emerging economies, Krishna Srinivasan, director of the IMF's Asia and Pacific Department, told a news conference on Wednesday.

With inflationary pressures "receding rapidly," prospects for a soft landing were improving in Asia, he said.

"Many regional central banks are on course to reach their inflation targets in 2024. Provided policymakers hold steady until inflation is firmly reanchored, scope for monetary easing may emerge later in the year," he said in the briefing on the IMF's updated regional economic outlook.

However, Srinivasan warned of divergence among countries, with China's near-zero price growth last year "fueling concerns about deflation," while Japan's inflation will likely remain above the central bank's 2 percent target until 2025.

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Relatively benign inflation meant Asian central banks raised interest rates less than their counterparts in other regions, putting downward pressures on some Asian currencies in the fall of 2023, he said.

"These pressures have abated for now, as the (US) Federal Reserve has signaled interest rate cuts going forward. However, there is a risk that divergent monetary stances in the United States and in Asia would trigger sharp exchange rate movements also this year," he said.

"If so, central banks should avoid being distracted by temporary turbulence and focus firmly on price stability."

Srinivasan said the IMF now expects Asia to expand 4.5 percent this year, up from 4.2 percent projected in October, due to robust US demand and the boost from expected stimulus measures in China.

"Overall, Asia is on track to deliver again two-thirds to global growth in 2024, as it did in 2023," he said.

The region's growth is likely to slow to 4.3 percent in 2025 due largely to an expected slowdown in China's economy, he added.

For emerging Asia, the IMF expects 5.2 percent growth in 2024, slowing from last year's 5.4 percent but upgraded 0.4 percentage point from October.