India And China Will Contribute More Than Half Of Global Growth This Year, Says IMF

The International Monetary Fund (IMF) said in a blog post that Asia will be a major driver of global growth, with other countries contributing another 25 per cent.

The IMF stated that the Asia-Pacific region's economy is set to grow 4.7 per cent in 2023

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As pandemic supply chain disruptions fade and the service sector booms, China and India alone are expected to contribute more than half of global growth this year, the International Monetary Fund (IMF) said in a blog post on Monday. Asia will be a major driver of global growth, with other countries contributing another 25 per cent.

In a blog post titled ‘Asia’s easing economic headwinds make way for stronger recovery’, IMF said, “The region’s emerging and developing economies, poised to expand by 5.3 per cent this year, drive this dynamism. These economies are hitting their stride as pandemic supply-chain disruptions fade and the service sector booms. China and India alone are expected to contribute more than half of global growth this year, with the rest of Asia contributing an additional quarter. Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are all back to their robust pre-pandemic growth.”

It added that Asia’s inflation is poised to moderate. IMF said, “There are now encouraging signs that headline inflation peaked during the second half of last year, though core inflation is proving more persistent and has yet to ease definitively. We expect inflation to return to central bank targets sometime next year amid an easing of financial and commodity headwinds.”

Central banks in Asia have been hiking interest rates as they tackle above-target inflation. These factors have helped Asian currencies rebound, with most erasing about half of last year’s losses, which has eased pressure on domestic prices, the IMF blog said. 

The Reserve Bank of India (RBI) increased the repo rate by 25 basis points to 6.25 percent on February 8. The inflation rate in January was higher than the RBI's maximum tolerance limit of 6 per cent, at 6.52 per cent, despite a cumulative increase of 250 basis points over the previous year.

According to the IMF, central banks may need to increase interest rates even further. It said that the central banks across the region need to stay alert as the core inflation is still high, and the re-opening of China's economy may push inflation up due to higher demand.

"Indeed, they may need to hike rates further if core inflation does not show clear signs of returning to target," IMF added.

However, as the global headwinds have improved and food and oil prices have cooled down, Asia is expected to grow at 4.7 per cent in 2023 and 4.5 per cent in 2024, it said. In 2022, the region grew at 3.8 per cent.