According to Srinivasan, a more prolonged slowdown in the world’s second-largest economy poses one of the biggest hazards to the region’s growth prospects, making China’s economic outlook crucial for Asia.
He warned that policies raising China’s supply capacity would “reinforce deflationary pressures and could provoke frictions,” even though an increase in government expenditure might help the country’s economy.
He stated that trade restrictions that are implemented quickly are another concern to Asia.
Srinivasan continued, “Very few regions have profited as much from trade integration as Asia.” Therefore, there is still a significant possibility of geoeconomic fragmentation.
Asian central banks were urged by the International Monetary Fund to concentrate on domestic inflation rather than making policy decisions too closely linked to future actions by the US Federal Reserve.
Diminished hopes for an impending interest rate cut by the Federal Reserve have contributed to consistent dollar appreciation, which has depreciated certain Asian currencies, including the South Korean won and the Japanese yen. The IMF’s staff analysis showed that US interest rates have a “strong and immediate” impact on Asian financial conditions and exchange rates, Krishna Srinivasan, director of the lender’s Asia and Pacific department, said on Thursday.
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