China and India will contribute more than half of global growth in 2023

International Business News – On May 2, the International Monetary Fund (IMF) released its Economic Outlook for Asia and the Pacific report, which analyzed that China and India will contribute about 50 percent of global economic growth in 2023. The report also concluded that China and India will maintain solid growth even in the face of heightened uncertainties such as local bank failures in the United States.

In April, the IMF raised its forecast for Asia-Pacific growth to 4.6 percent in 2023, 0.3 percentage point higher than its October 2022 forecast. According to the analysis released on May 2, the combined contribution of China and India to the global economic growth rate of 2.8 percent is 34.9 percent and 15.4 percent, respectively. Together with other Asia-Pacific countries, the contribution of the whole region will reach about 70%.

While the economic growth rate in Europe and the United States has slowed, the presence of the Asia-Pacific region has increased. At a press conference in Hong Kong on the same day, Krishna Srinivasan, director of the IMF’s Asia Pacific Department, said, “This is a huge share that we have not seen in recent years.” The economic outlook report released on Tuesday stressed that China is the biggest driver of economic growth this year. In April, the IMF raised China’s growth rate to 5.2 percent in 2023, 0.8 percentage points higher than its previous forecast. With the lifting of quarantine measures, China’s consumption is recovering. “Consumption, not investment, is driving China’s economic growth,” the report said.

This report also mentions the impact of China’s economic recovery on neighboring countries. Neighboring countries such as Vietnam and Cambodia have benefited from the inflow of Chinese tourists and the expansion of exports to China.

On the other hand, the outlook for China’s manufacturing purchasing managers’ index (PMI), which was released at the end of April, is also worrisome as it was below the 50 mark. Srinivasan said, “There are also risks to (China’s) growth, and China especially needs to provide support to the real estate sector.”

Regarding India, the report points to weak domestic demand and a slight deceleration in growth. in April the IMF lowered India’s economic growth forecast to 5.9 percent in 2023, down 0.2 percentage points from the October 2022 estimate. But Srinivasan commented at a press conference that India’s economic “growth remains solid”.

The IMF lowered its forecast for economic growth in the Asia-Pacific region to 4.4 percent in 2024, down 0.2 percentage points from the original. The pressure of global demand deceleration will be a heavy burden due to the adverse impact of economic anomalies in Europe and the United States. The report also concluded that the “core inflation rate” excluding food and energy remains high, and it is difficult to balance monetary tightening and economic development.

The press conference in Hong Kong also analyzed the potential risks and issues in China. The real estate sector, which has been exposed to many problems due to the Evergrande Group’s debt default in 2021, is gradually regaining stability as the government has turned supportive since the second half of 2022. However, small and medium-sized developers and local cities are still struggling, and the IMF called on the government to provide support in order to change the “uneven recovery.

In China, structural problems such as aging and population decline have surfaced. Srinivasan pointed out at the press conference that if reforms such as delayed retirement can be implemented, it will have the effect of raising the potential growth rate by 1 percentage point.