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Source: IMF – News in Russian

October 13, 2023

PARTICIPANTS:

Moderator:

TING YAN
Senior Communications Officer

International Monetary Fund

Speaker:

KRISHNA SRINIVASAN

Director of the Asia and Pacific Department

International Monetary Fund

* * * * *

P R O C E E D I N G S

MS. YAN: Good morning, everyone. Welcome to this IMF press briefing on the Asia and Pacific Region’s Economic Outlook. My name is Ting Yan. I’m from the Communications Department at the IMF. I’m pleased to be joined today by Dr. Krishna Srinivasan, Director of the Asia and Pacific Department in the IMF.

Earlier this week, we published our latest Economic Outlook for the world, including those in Asia. Today, as we speak, we just released an IMF blog by Krishna titled “Asia Continues to Fuel Global Growth, But Economic Momentum is Slowing.” I hope you have had a chance to read it.

The full Regional Economic Outlook Report will be launched next Wednesday, October 18, in Singapore at 9 a.m. local time. Please stay tuned.

Today, Krishna will start with some opening remarks and then we will be happy to take your questions.

With that, Krishna, the floor is yours.

DR. SRINIVASAN: Thank you. Thank you, Ting. Good morning to everyone here in Marrakech and good afternoon to everyone in Asia. Thank you very much for joining our press briefing for Asia and Pacific. Please allow me to make a few opening remarks.

Global growth is forecast to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024. The global outlook is supported by continued consumption dynamism in the U.S., but faces pressures from China’s worsening property crisis, tight policy stances around the world, the consequence of Russia’s war in Ukraine, and growing geoeconomic fragmentation.

Despite a challenging global environment, the Asia-Pacific region remains a relatively bright spot. It is expected to grow by 4.6 percent in 2023 and by 4.2 percent in 2024, which puts it on track to contribute to about two-thirds of global growth this year.

Now let me go into specific forecasts for a few major economies in the region. The reopening of China’s economy has given the service sector and retail sales a boost as experienced by other economies. However, the benefit to manufacturing sector is proving to be short-lived. The real estate sector in China is grappling with further pressures on debt repayments, home sales, and investment. Based on these weaknesses, we have revised down China’s growth forecast to 5 percent for 2023 and 4.2 percent for 2024.

In Japan, the economy is projected to grow by 2 percent in 2023. That’s a 0.7 percentage point increase from our April WEO forecast and reflects strong domestic demand as well as accommodative monetary and fiscal policies.

India’s economic growth remains robust, driven by a large public capital expenditure push and resilient domestic demand. The economy is expected to grow by 6.3 percent in both 2023 and 2024.

Although the downturn in the technology exports is projected to dampen the near-term growth momentum in Korea, the economy is expected to rebound next year as the technology cycle turns the corner.

In Australia, large public investment and robust external demand should provide a lift to growth, but domestic demand is weakening given rising mortgage payments and lower real disposable incomes.

The economies in ASEAN are expected to see growth of 4.2 percent in 2023 and 4.6 percent in 2024, a downward revision of 0.4 percentage points in 2023 and 0.3 percentage points in 2024 relative to our World Economic Outlook in April. The downgrade reflects not only weaker growth outturns, but external demand is also weakening and more lacklustre domestic demand because of waning revenge consumption and monetary policy tightening. GDP in the Pacific Island countries with high dependance on tourism is still more than 10 percent below pre-pandemic levels with challenges from higher fiscal deficits, elevated debt, and shrinking fiscal space.

Let me elaborate a bit more on Asia’s recent developments based on high frequency indicators. Even as pressures in China’s property sector remains unabated, I’d like to highlight that China’s manufacturing PMI showed an expansion of activity in September. The year-on-year growth of retail sales has also improved, but monthly data are volatile, and caution is warranted in the interpretation of short-term fluctuations.

Going beyond China, what we see is continued resilience and strength and activity in the services sector in Asia, as evidenced from the PMIs. However, manufacturing activities exhibit weakness across Asia. The persistent downturn of the technology cycle continues to weigh on manufacturing activity in the region’s advanced economies. In September, manufacturing activity in Asia’s emerging markets, excluding China, also moved into negative territory, reflecting broader weakness in global demand.

Headline inflation has declined from post-pandemic peaks as global commodity prices have receded and monetary policy bites, albeit with signs of renewed price pressures emerging more recently. Moreover, in a few advanced economies in Asia, core inflation remains sticky due to tight labor market and positive output gaps. Except for Japan, inflation is expected to return to within target ranges by the end of 2024. This puts Asia ahead of the rest of the world, although the risk of more persistent inflation could materialize given recent commodity price spikes, exchange rate changes yet to be fully passed through, and tighter labor markets.

Central banks should stay the course with policies to ensure that inflation is durably at target and expectations are anchored. With accommodative financial conditions in Asia’s emerging markets there’s no urgent need to ease monetary policy.

Now moving to financial markets. Financial conditions advanced Asia have tightened as higher rates take hold, but emerging Asia has seen accommodative financial conditions. However, the recent rise in U.S. long-term yields following the September U.S. Fed meeting has exerted pressures.

In the past few weeks, we have seen financial tightening across Asian markets. Long-term local currency sovereign yields, notably in some economies in Asia and Pacific, have increased substantially since the FOMC meeting in September. At the same time, Asian currencies have depreciated across the board, although to a limited extent compared to previous U.S. dollar strengthening episodes.

Financial supervisors in Asia should remain vigilant on systemic risks and calibrate macroprudential measures, given the higher leverage and rates. If financial stress were to emerge, deploying liquidity and other support measures promptly, while modernizing resolution frameworks, would be important.

Finally, to summarize in the Asia-Pacific Regional Economic Outlook that we will publish in Singapore next week we emphasize that the region is facing challenges from persistent medium-term output losses and China’s structural slowdown, geoeconomic fragmentation, and inflation.

I will not go through this slide on policy messages. I’ll leave them here for you to look at, and I’ll stop here. Thank you, Ting.

MS. YAN: Thank you very much, Krishna. You will find the full opening remarks together with the charts on imf.org.

Now we are happy to take your questions both in person from the room and also on Webex and IMF Press Center online. For those who are waiting on Webex, please be patient and stay muted until I call on you.

Now starting the room, if you have a question, please raise hands, identify yourself, and try to be brief.

Lady in the front row, please. Here. Thank you.

QUESTIONER: Hello. Thank you very much. Leika Kihara from Reuters. I have two questions, one on China.

We had data out recently showing that China’s consumer prices were flat. Producer prices continued to fall as well. How big is the risk China experiences, the kind of deflation and economic stagnation that Japan went under during — after the burst of its asset bubble? Because there’s talk in some circles about China, you know, turning into Japan, something like Japan, Japanification. Do you buy that argument? And just for context, what’s different between what China is facing now and Japan and what’s similar?

My second question is about Asia and inflation. You talked about Asia being ahead and trying to curb inflation. Is the region out of the woods in term of its fight against inflation? How could the renewed rise in energy prices and the Middle East conflict affect Asia’s economic outlook, inflation outlook, and any policy suggestions you have? Thank you.

DR. SRINIVASAN: Thank you. So, there are three questions from you, so let me take them one by one.

On deflation, even though you talked about the risk of deflation, even though we have seen, you know, headland prices come down and PPI come down, we still project core inflation to continue rising. Core inflation this time came at 0.7 percent. And as recovery continues and capacity utilization increases and, we see the waning effects of commodity prices, you will see core inflation still rising, I think. So, we don’t see a risk of deflation in our baseline.

Now, on your second question on stagnation and comparison with Japan, I think it would be fair to say that there are some similarities, but also important differences. And overall, we believe that China can avoid a prolonged period of subpar growth with the right policies.

So, why do we say this? So, what we notice is balance sheet stress and debt overhang in China is localized in the real estate sector, notably among troubled developers and some local provinces. So, that’s one difference. And we believe that with appropriate policies, localized balance sheet distress can be prevented from becoming more generalized or from spreading.

So, what are these policies? So, beyond the macroeconomic policy support, we believe that the central government should provide some support for restructuring of distressed developers and unfinished real estate projects, the restructuring of local government debt, and greater adjustment in prices. All that is fine, but even so, the drag from the real estate sector to a more sustainable level raises risks. And risks of a broader balance sheet deleveraging is a concern given thatdebt is high across several parts of the economy. But we believe that without stronger policies to address the real estate sector, this could be a bigger problem. So, the point we’re trying to make is that it’s important to address the real estate sector, the crisis there head-on, so that it doesn’t become a bigger crisis.

Now, your third question was on inflation. I think here you’ll see in our report next week that when it comes to inflation in Asia, there are three things to be noted. One is inflation started rising late in Asia compared to other regions of the world. When it started rising, it didn’t rise as much as in other parts of the world. And now it’s decreasing well ahead of in other regions.

But the question, of course, is the region has made remarkable progress in terms of reducing headline inflation, but core inflation remains a bit sticky, especially in some advanced economies in Asia. This is why we believe that there should not be a rush to cut rates unless inflation comes down to target ranges, central bank should stay the course.

And you talked about the conflict, we highlight that in terms of commodity price shocks could be one of the downside risks of why inflation could go up. So, that’s why it’s important to stay the course on monetary policy and not rush to cut rates before inflation comes back to target.

MS. YAN: The gentleman in the second row here.

QUESTIONER: Thank you. Huo Jing from Xinhua News Agency of China. I have two questions, if I may.

And the first is, from the crisis in Ukraine to the ongoing conflict between Palestine and Israel, and the sanctions and decoupling tamped between some of the largest economists in the world, the global geopolitical and geoeconomical landscapes are changing really fast and some Asian countries are facing the influence of the change directly. So, what measures can Asian countries take to increase the resilience of their economy when facing this changing environment?

And the second is, the real estate and property challenges in China has been making headlines recently and the World Economic Outlook Report described China’s economy as facing growing headwinds from its real estate crisis and weakening confidence. With these gloomy narratives, what are the strengths and advantages that China’s economy still enjoy now that will help facing the challenges that mentioned above? Thank you.

DR. SRINIVASAN: Okay. Two questions, I hope I remember your second one after I answer the first, but I may have to ask you to repeat the second question.

On your first question, what can countries do to build resilience, I think two words: increase buffers and flexibility. Let me explain that a bit more in detail.

Now, it’s important for countries to rebuild fiscal buffers following the pandemic. So, what we’ve seen is during the pandemic a number of countries provided support, and rightly so, to protect lives and livelihoods. Now it’s important to wind down those measures and where, if needed for the poor and vulnerable, you keep them targeted. But overall you should wind down the support provided during the pandemic and start building fiscal buffers. I think that’s very important because you want to be prepared for other shocks which may arise.

So, I think the first thing is build buffers and fiscal buffers, and there are countries which are doing that. I can give an example where in the case of Korea, they started retrenching fiscal support in the second half of 2022 and they’re continuing with that in 2023. And we think that’s the right thing to do becauseyou want to build fiscal buffers so that debt does not become an issue down the road.

Similarly, you need to build buffers in the financial sector. So, you need central banks and supervisors need to make sure that capital and liquidity buffers are sufficient and, if need be, bolster them, so that the financial sector is also able to cope with any kind of shocks that arise.

Now, what do I mean by flexibility? I said increased flexibility. I think it’s important for countries in the region to use exchange rate flexibility as a way to absorb the shocks. I think that’s important.

So going beyondbuilding buffers and flexibility, I think it’s important for countries to continue with the structural reforms. I think in many ways countries have been preoccupied with short-term policy challenges. It’s important to focus at the same time on medium-term priorities. And that’s why structural reforms geared towards improving productivity, improving connectivity, digitalization, all these are all country-specific but it’s important to continue embarking on these reforms because those are important to be done at the same time as you think about near-term policies.

And your second question was about the pessimism about China. Is that the right way to categorize that other question? Yeah. So, I think to start answering the question, I would say China’s per capita income is still substantially below that of advanced economies. So, there is much more scope to reach convergence. So, in that sense, there’s a long way to go. There’s no reason to feel despondent.

I would also highlight that there is inherent dynamism in the Chinese economy, and this is based on remarkable achievements they have made in human capital, innovation, and research. So, reflecting on these things, when you talk about growth going forward, I think you have to leverage on these strengths which you have built over the years, again, in the context of dynamic entrepreneurship and promoting competition, openness of trade and investment. So, you continue to build on those.

At the same time, you have to also embark on structural reform policies. For example, in China, productivity has been declining and also populations aging. So, you need to address those issues, also. And in our forthcoming Article IV report, we’ll elaborate on these, on what kind of structural reforms are needed, but, more generally, in terms of allowing a level playing field between private and state-owned enterprises, fostering and enabling a business environment, and reducing internal restrictions on labor mobility, and improving business development and transactions will all go towards improving the continued dynamism of the Chinese economy.

So, I won’t be so despondent as you made it out to be.

MS. YAN: Thank you. Lady in red in the back. Yes, please.

QUESTIONER: Thank you very much. Good morning, Krishna. I’m from China.

My question is, at a time of uncertainties, how do you assess the impact of Chinese economy on global economy? Thank you.

DR. SRINIVASAN: So, again, that’s a good question. Let me talk about Asia first and then about global. So, anytime China slows, it has a bearing on the global economy and notably on the Asian economies. China contributes almost a third to global growth this year. So, again, if China slows, it has a bearing.

Two things here. What we have found is when Chinese growth declines by 1 percentage point, on average other economies growth declines by 0.3 percentage points over the medium term. So, it’s even more important for Asian economies because intraregional trade in Asia is more than 50 percent and a large part of that is, you know, China. So, China is a clear nucleus in this. And so, China slowing down, countries which have close linkages with China will slow down more. So that’s the impact, but overall, 0.3 percentage point on average over the medium term for a 1 percentage point decline in Chinese growth. Going beyond that, we have in our report — which is published next week- we look at downside scenarios emerging from de-risking. And there we look at two elements. One is what we call as friendshoring, and the other what we call reshoring. And both of these are scenarios where trade transactions are limited or trade flows between countries are limited. In both these situations, global growth will fall and China’s –growth will also fall.

MS. YAN: Thank you. Gentleman, first row here.

QUESTIONER: Hello, I’m Monchai from TNN Thailand. I’ve got two questions.

The first question is ASEAN’s economy is significantly linked to China’s economy. What is your foresight about the next chapter?

And the second question is Thailand, Vietnam, Indonesia, is trying really hard to get capital and investment from China or kind of benefit of industrial relocation. Isn’t that the resilience of ASEAN’s economy growth? Thank you.

DR. SRINIVASAN: Thank you for those very good questions.

Again, as I mentioned in my response to the previous question, intraregional trade in Asia is more than 50 percent. So, when China slows, every economy in the region is likely to slow. And if you looked at our projections for the ASEAN countries, we have projected slower growth this year partly because of the slowing of the Chinese economy. So, there is a very close linkage between ASEAN and China. So, to the extent that China slows, ASEAN is also going to slow.

And I gave you a number that, on average for a 1 percentage point decline in Chinese growth, growth in other countries slows by 0.3 percentage points there. And the more linkages you have the impact will be that much more.

Now, I think you had a question which relates to geofragmentation, right? And I think here we have to be careful. And people talk about the fact that some countries could gain from fragmentation and so on and so forth. We have to be very careful.

I think the analysis we have done shows that when you have any kind of fragmentation or de‑risking and we look at frienshoring and reshoring, all countries hurt. Right? In the near term, some countries may benefit from, you know, trade diversion, okay, but that’s in the near term. But what happens in these de‑risking scenarios, global output falls, output in China falls, so the aggregate demand effect kind of outweighs the impact you get from trade diversion. So, you may benefit a little bit in the short term, but over the long run, everybody loses.

So, that’s why we say it’s important to fight against the forces of fragmentation and de‑risking. And the ASEAN is a very integrated region, so I think they can be the leader in trying to make the case for no de‑risking or no fragmentation.

MS. YAN: Thank you. Since we are on ASEAN, I see some hands on Webex. Let me take one from Webex. Rully from CNN, Indonesia. Rully, please go ahead.

QUESTIONER: Yeah, thank you, Ting and Krishna. I’m going to asking about Indonesia.

So, what is the IMF’s current assessment of Indonesia’s economic prospect for the year 2024? Are there any key indicators or factors that stand out in this assessment? And how might the upcoming provincial elections in February 2024 influence Indonesia’s economic policies and stability? So, does the IMF foresee any potential economic challenges associated with the elections? Thank you.

MS. YAN: Thank you, Ruli.

DR. SRINIVASAN: Thank you for the question. As you can see from our growth forecast, we have 5 percent growth in 2023 and 5 percent growth in 2024. So again, Indonesia is a fast-growing economy, one of the more dynamic economies in the ASEAN and in Asia. And this reflects many factors. I think one is macroeconomic policies have been very prudent. You know, inflation has been brought under control by action by the central bank in raising interest rates. The fiscal stance has been very much constrained and prudent. So, the macroeconomic policies are all, I would call, sound and so, you know, there’s inherent dynamism in the Indonesian economy and so that explains why we have growth at 5 percent.

Now, your question about the election and so on, again, we don’t comment on political developments, but I would like to believe that given the success of Indonesia over the past few years, we would believe that the reform and policies would be continued. So, I don’t see a big change, at least we would hope there would be no change given how much success the current policies have delivered for Indonesia.

MS. YAN: Thank you. Here, the gentleman in the first row. Thank you.

QUESTIONER: Good morning, Krishna. Thank you for your presentation as well. Zulfick Farzan from Newsfirst, MTV and MBC Networks, Sri Lanka. Two questions to you.

First is Sri Lanka is on the road to recovery and this journey is very slow and there is growing concern among the masses at the massive price hikes that the government has imposed. Now, the IMF proposed that cost-reflective adjustments need to be made and the masses believe that the state is abusing this recommendation. Can you give your thoughts on that?

And secondly, just this week China’s EXIM Bank reached an agreement with Sri Lanka for its debt arrangement. However, it is said that this pact will take time to materialize. What are your thoughts on this as well and will it not affect the second tranche release and the staff level agreement as well as the board approval? Thank you.

DR. SRINIVASAN: Thank you for those questions. On your first question, we fully sympathize and understand the hardship faced by people in terms of falling wages, cost of living increases, and so on, and we’re fully sympathetic to that. But again, the program, we do have, , prices reflecting cost recovery.

And why is that important? It’s important because otherwise the electricity sector faces losses and that becomes a public problem down the road. So, you have to have cost recovery. I think that’s important.

You also don’t want to provide, subsidies to everyone. It should be more progressive. And here we believe the targeted support to the poor and vulnerable is the way to go.

But going beyond just the immediate thing, I think efficiency in the energy sector and the electricity sector could be increased through structural reforms. And, in general, SOE reforms are important in Sri Lanka. And that’s part of the program we have where the IMF working at the World Bank is pushing ahead with reforms to SOEs, including in the electricity sector. But I think that’s the way to look at it.

On your second question, I would say that as part of the review, what will be required will be financing assurances. In that context we will look to see how much progress has been made on debt restructuring efforts and if there are any agreements, then how do they square with the debt targets and so on? So, it’s part of the process of the second review.

So you talked about one creditor, but the financial sector review will look at what restructuring within other creditors, including the private creditors, the OCC, and so on.

MS. YAN: Thank you. Since we’re on Sri Lanka,I just received also a couple of questions from Asantha from EconomyNext. So, he has two questions.

We understand that bondholders have made a proposal for GDP-linked bonds. Is this something that the IMF allows or encourages Sri Lanka to consider?

And has the Sri Lanka macro fiscal framework been revised up or down since the last DSA, also with these October revisions to other countries?

DR. SRINIVASAN: Again, thanks for that question. We don’t get involved in these debt restructuring efforts between creditors and the debtor. So, if private creditors have put forward a proposal which includes GDP-linked bonds, that’s for Sri Lankan authorities and their advisors to engage with them to see. Our role comes in in terms of to see how any kind of agreement is consistent with the debt targets and consistent debt restructuring exercise in the macro framework.

Your second question was on the macro framework. Again, anytime we have a review, we assess the macroeconomic framework in a very holistic way.

MS. YAN: Thank you. Gentleman here.

QUESTIONER: Hello. Sharad Ojha from Nepal. I have two questions.

In the country like Nepal, the tight monetary policy have reduced the consumptions and the import-based economy like Nepal is suffering from revenue loss. And the public finance is an adverse scenario. Due to the recent Israel war, may be the inflation will go up. [inaudible]? You alsoindicated that.

As of now, government is struggling with the funds. Private sectors are also struggling with the Fund, in this scenario LDC like Nepal. How are they able to manage their fiscal public finance in futures and what do they have to acquire from the resources and what are your specific policy prescriptions for LDC like Nepal?

And my second question is, Nepal had taken the ECF from the Fund and what is the Nepal’s progress on the conditions? Thank you.

DR. SRINIVASAN: Thank you for those questions. Just to give a little bit of perspective, Nepal’s growth stalled last year and because of that, the ensuing shortfall in revenue led to widening the country’s fiscal deficit, but to a level that remains consistent with sustainable level of public debt, reflecting budget discipline.

Now, for this year we project a mild recovery of 3.5 percent supported by strong tourism activity and additional capacity in hydropower. So, that’s in terms of the growth picture for Nepal. And in this coordinate, I would say that the planned increase in capital spending as envisaged in the FY 2023-24 budget will help boost aggregate demand and support growth.

Now, considering limited domestic resources, increasing the absorption of external concessional financing, you know, you talked about that, in particular project loans, would help provide the necessary boost to demand while maintaining public debt at low levels.

Now, improving domestic revenue mobilization remains essential to diversify away from import-related revenue while generating revenue to finance development needs. And again, this is an issue of in our report coming out next week where we talk about how domestic revenue mobilization is very important across many parts of Asia, including in Nepal.

And I would say that the ECF program, the Fund-supported program you have in Nepal, they have made good progress, and it actually led to a staff level agreement on the third review under the ECF. And when we complete a review that means progress under the program has been good. And so they have met many of the reform objectives which are embedded in the program. So, I think it looks promising.

MS. YAN: Thank you. Gentleman in the first row here. Yeah.

QUESTIONER: Thank you. I am Kamal from Bangladesh Bangladesh Sangbad Sangstha.

Actually, IMF has projected 6 percent GDP growth for Bangladesh. Our government, on the other hand, has set a target 7.5 percent growth to achieve in FY ’24. My question is, what measure should take our government to achieve the higher growth? Thank you.

DR. SRINIVASAN: Okay. It’s not very uncommon for the countries to have a higher growth number than us, so the difference there. But again, let’s not forget that every country in the region, including Bangladesh, is feeling the economic challenges arising from the global environment. You have elevated commodity prices, you have a slowdown in external demand, and you have global monetary tightening, which continues. All these factors continue weigh on Bangladesh’s growth. And that’s why we have growth at 6 percent in FY ’24, unchanged from FY ’23.

Now, the authorities have taken significant measures to address the macroeconomic challenges. The important part is to distinguish between the macro stability objectives and then the growth objectives. Here, they have tightened monetary policy stance to reduce inflation. They have allowed more flexible exchange rates while unifying the exchange rate system. And they’ve kept prudent fiscal policy. And at the same time, they have reprioritized spending to support the poor and the vulnerable.

So, at this point in time, the effort is going towards macro stability. A 5 percent growth in that context is pretty reasonable.

Now, going forward, Bangladesh has significant growth potential. The demographics are favorable, and, you know, once it comes off with crisis and the reforms are addressed in the context of a full program, you’re well placed to reach middle-income status. So, I think let’s differentiate the immediate growth numbers from the medium term potential. I think there that’s quite a bit.

And I think, you know, for Bangladesh, one of the key objectives is to raise revenues to support both the development objectives and to support infrastructure needs and all that going forward, which will also boost productive potential of the economy. So overall, I think, the economy is off on the good track in terms of meeting the objectives of the program, getting inflation under control, addressing the macro challenges given a very difficult global environment.

MS. YAN: Thank you. Gentlemen here. Yeah.

QUESTIONER: Good morning. I’m Jeremy with the AFP news agency. Part of trade between China and the U.S. seems to go through countries like Vietnam now, where final assembling is made for various products. What could be the impact of such a new trade paradox for the economy of the region?

DR. SRINIVASAN: Thank you. Again, as I mentioned in my previous responses, when you talk about issues like de-risking, I mean let’s talk about the fact that supply chains right now are well established. So, to have a major change in these established supply chain thik, it’ll take some time. The question is, do we see any changes in trade patterns and FDI patterns? And you do see some data which shows that, you know, trade with countries like Vietnam, FDI in Vietnam has gone up.

But as I noted in my earlier response, when you look at these kind of scenarios where there is de-risking, you know, when you talk about French shoring and offshoring, some countries like Vietnam may benefit from trade diversion and from investment being diverted to countries away into Vietnam. But overall, over the long term, everyone hurts. So, it’s important to keep that in mind that everyone works towards greater integration and so on.

So, in the short term, countries like Vietnam will likely benefit, but over the longer term, everyone hurts. So, that’s why it’s important to make sure that these forces of fragmentation and de-risking are kept at bay.

MS. YAN: Thank you. Here. Yeah.

QUESTIONER: Hello, good morning. I’m [Skunchai] from The Standard, Thailand.

Regarding to many economists, they have said that central banks need to be careful about premature celebrations. However, for some countries like China or Thailand, for instance, the inflation is still expected below the target. So, my question is, should these countries start using the policy for supporting growth?

DR. SRINIVASAN: One thing is when I talked about inflation, I need to make a caveat that China is in a different situation where inflation is pretty muted, recovery is still continuing, there’s a lot of capacity. So, once that capacity is slowly used, inflation will rise. As I said, we expect core inflation to continue rising in China, but right now the economy needs support and we have asked for accommodative monetary and fiscal policies in the case of China to support the growth pattern in addition to policies aimed at addressing the real estate sector.

Now, in other countries where inflation is at target, it’s important to see given the fact that there are risks, upside risks to inflation in the context of, you know, higher commodity prices and so on and so forth, one has to be careful to see whether inflation’s durably a target before you think in terms of easing policies. So, I think it’s important to make sure that you have inflation under control on a durable basis before you start thinking in terms of easing polices.

MS. YAN: Thank you. Let me turn to online questions. I received two questions from Deepshikhathe Economic Times in India. Her question is, what kind of policy interventions are needed at this juncture in countries like India to lift growth?

And her second question is, what kind of impact could sharp spike in bond yields and crude oil have on EMs such as India? And what can be done to shield their financial systems?

DR. SRINIVASAN: So, what was the first part?

QUESTIONER: The first one is what kind of policy interventions are needed at this juncture in countries like India to lift growth?

DR. SRINIVASAN: Okay. So, I think on the first question in terms of what are policies needed to lift growth, I would argue that the overall macroeconomic environment in India is pretty sound. And that explains the growth we have at 6.3 percent. They have been fiscally disciplined. They expectthe fiscal at 5.9 percent this year. The central bank has moved fast to bring inflation under control. The most recent number was 5 percent. So, inflation is coming down. So, overall, the macroeconomic environment is pretty sound in India.

Where I think in terms of if you want to really exploit the significant potential India has, then I think the need isfor structural reforms. Again, there India has made significant strides, very impressive strides, in the area of digitalization and beefing up infrastructure where the efforts have been truly impressive. But beyond that, there could be reforms aimed at improving the business environment, labor reforms, removing trade restrictions. All these go into building an environment which will support investor competence more — more so in India. So, structural reforms will be the key in supporting, I think.

In terms of the rising yields, you said, I think there — I think this is true for every country, where if ‑‑ when interest rates start rising, I think it’s important to keep in mind that sectors which are highly leveraged are likely to hurt more. And that’s not just true for India, but it’s true for other countries in the region. And that’s why it’s important to borrow carefully. And that applies to both the private sector and the public sector.

MS. YAN: Thank you. I see a, yeah, gentleman.

QUESTIONER: Mudrisa Chaudhry here from Pakistan. Do you think Pakistan and India, should they increase their trade for common people benefits, especially, when they completed the CPEC project?

DR. SRINIVASAN: So, my department doesn’t cover Pakistan, so I will not take that question. Overall, I believe that it’s important that there is trade integration across the world, so that’s a a common theme. I’ve talked about the risks of fragmentation and so on. So, I think any kind of trade integration will go in the right direction.

MS. YAN: Thank you. Yeah, the one next. Thank you.

QUESTIONER: My name is John Daniel from [Anamitis] Daily.

The rising dominance of Asian countries in terms of economic development is very amazing. The Asian region taken holistically has risen high, perhaps more than any other region of the world. What is the secret behind the rising economic dominance of the Asian countriesWhat lesson can Africa take from there? Thank you, sir.

MS. YAN: Thank you.

DR. SRINIVASAN: I think one lesson I would take from what’s happened in Asia over the last 20 years since the Asian financial crisis is that they have made significant improvements in their macro policy frameworks, whether it’s inflation targeting frameworks of central banks, fiscal prudence, alleviating balance sheet mismatches, and so on. So, I think the overall policy frameworks are very, very important. And so I think that’s the key thing which explains the dynamism in Asia and also the growth of China. I mean, China has grown very impressively over the last 25 years and that’s been an important engine of growth in Asia.

As I mentioned, more than 50 percent of trade in Asia is intraregional and China is a key player there. So, China has been a big player in promoting trade within the region. But beyond that, I think Asian economies should take a lot of credit for how they’ve improved their macro fiscal frameworks and the macro fundamentals.

MS. YAN: Thank you. Here. Yeah.

QUESTIONER: Ryan Kirby, Global Voices Australia. So, my question is on Australia. Talking about the structural impediments to servicing Australian growth, mortgage repayments are taking a greater share of the income composition, and whilst upward pressure on wages has been strong, upward pressure on prices has been stronger. The result is declining real wages in the short to medium term. And this is not an affliction that is unique to Australia. And so my question to you is, given that this is likely to continue, when do you, in your modelling, expect to see a turnaround in wage growth comparative to price growth?

DR. SRINIVASAN: So, again, thank you for that question. It’s very difficult to predict when inflation will come down to targets. Again, this is country-specific. One has to look at wage developments. And to be honest, I cannot fully speak on the the wage trends in Australia. I’m not entirely familiar with that. But again, to put a timeframe from when inflation will come down and when wages will start increasing, it’s very difficult to say.

MS. YAN: Thank you. I think we can conclude now. And please, a reminder that the transcript and the video will be on the website.

And thank you very much for joining us today.

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IMF Communications Department
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PRESS OFFICER: Ting Yan

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