By Leika Kihara
TOKYO (Reuters) -The Asian region faces a “stagflationary” outlook amid significant uncertainty with economic growth being lower than previously expected and inflation being higher, a senior International Monetary Fund (IMF) official said on Tuesday.
While Asia’s trade and financial exposures to Russia and Ukraine are limited, the region’s economies will be affected by the crisis through higher commodity prices and slower growth in European trading partners, said Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia and Pacific Department.
“These headwinds to growth come at a time when policy space to respond is limited,” Gulde-Wolf told a news conference, adding that Asian policymakers will face a difficult trade-off of responding to slowing growth and rising inflation.
“Monetary tightening will be needed in most countries, with the speed of tightening depending on domestic inflation developments and external pressures,” she said.
The U.S. Federal Reserve’s expected steady interest rate hikes also presents a challenge to Asian policymakers given the region’s huge dollar-denominated debt, Gulde-Wolf said.
In its latest forecast issued this month, the IMF said it expects Asia’s economy to expand 4.9% this year, down 0.5 percentage points from its previous projection made in January.
A further escalation in the war in Ukraine, new COVID-19 waves, a faster-than-expected Fed rate hike trajectory and prolonged or more widespread lockdowns in China are among risks to Asia’s growth outlook, Gulde-Wolf said.
“There is significant uncertainty around our baseline forecasts, with risks tilted to the downside.” she said.
(Reporting by Leika Kihara; Editing by Christian Schmollinger & Shri Navaratnam)