The International Monetary Fund (IMF) said recently that China’s weak economic recovery could hurt Asian economies.
The IMF also said the risk of a longer property crisis in China could present additional risks.
China’s economic gains after the government eased COVID-19 restrictions lost strength earlier than expected, the lending group said.
The IMF said the strength of the U.S. economy has offered less support to Asia than in the past. That is because U.S. economic growth has mainly taken place in the service industry, which does not increase demand for exports very much.
Problems in China’s heavily indebted property, or real estate, sector and the resulting economic slowdown will likely affect other countries in Asia in the near future. The IMF added countries that export raw materials to China will likely be affected.
The IMF said a longer real estate crisis and limited policy action in China would deepen the economic slowdown in the area.
The IMF released its World Economic Outlook during its yearly meetings held this year in Marrakesh, Morocco. The IMF cut next year’s growth estimate for Asia to 4.2 percent from 4.4 percent projected in April.
"Any time China slows, it has a bearing on the global economy, notably...Asia," said Krishna Srinivasan. He is director of the IMF's Asia and Pacific Department.
Asia is seeing inflation slow sooner than other parts of the world. But central banks there should not quickly cut interest rates as core inflation remains, Srinivasan said.
Core inflation measures the rate at which prices for many products rise. But it does not include prices for things like food or energy which can change quickly.
"Central banks should stay the course," he said. He added the conflict in the Middle East could cause inflation to increase.
Effects of Japanese policy
The IMF said Japan’s central bank made small changes to its financial policy. Those changes affected other countries. The international lender said this is because of the larger presence of Japanese investors in the international bond market.
The IMF said such effects could become larger in the event of further action taken by Japan’s central bank to control its economy.
The Bank of Japan (BOJ) has aimed to limit interest yield for its 10-year bonds to support its economy.
Central banks around world have put in place policy measures to combat rising prices of goods and materials. As this happened, the BOJ last year began to ease its yield limit. The moves were widely seen by markets as Japan’s steps towards easing government policies of massive spending.
Some researchers say a large interest rate increase in Japan could greatly affect financial markets. They worry it would increase the cost of borrowing for companies and investors across the world.
I’m Gregory Stachel.
