By Leika Kihara
MARRAKECH, Morroco (Reuters) – China’s weak recovery and the risk of a more protracted property crisis could further dent Asia’s economic prospects, the International Monetary Fund (IMF) said on Friday, warning of a cloudier outlook for the once fast-growing region.
China’s post-lockdown economic boost lost momentum earlier than expected, the IMF said.
Meanwhile the strength of the U.S. economy has offered less support to Asia than in the past because it has been focused on the service sector, which does not fuel demand for exports, the Fund said in a blog on the region’s outlook.
“In the near term, the sharp adjustment in China’s heavily indebted property sector and the resulting slowdown in economic activity will likely spill over to the region, particularly to commodity exporters with close trade links to China,” it said.
“On the downside, a more protracted real estate crisis and limited policy response in China would deepen the regional slowdown.”
A sudden tightening of global financial conditions could lead to capital outflows and weaken exchange rates in Asia, the blog added.
In its World Economic Outlook released during the annual IMF meetings in Marrakech this week, the IMF cut next year’s growth estimate for Asia to 4.2% from 4.4% projected in April, and down from 4.6% forecast for this year.
“While Asia is still set to contribute about two-thirds of all global growth this year, it is important to note that growth is significantly lower than what was projected before the pandemic,” the IMF said.
On Japan, tweaks that its central bank made to its bond yield control policy led to broad market “spillovers” due to the larger presence of Japanese investors in the global bond market, the blog said.
Such repercussions “could become larger in the event of a more substantial normalization of monetary policy.”
The Bank of Japan (BOJ) had maintained a cap on the country’s 10-year bond yield at around zero, to support a fragile economy.
As central banks across the globe tightened monetary policy to combat soaring inflation and rising global commodity prices pushed up domestic inflation, the BOJ last year began to progressively ease the yield cap, in moves widely seen by markets as steps toward phasing out its massive stimulus.
Some analysts say a full-fledged interest rate hike in Japan, which has not happened for nearly two decades, could upend financial markets by boosting the cost of funding for companies and investors across the globe.
(Reporting by Leika Kihara; editing by John Stonestreet)
