India, China will contribute more than half of global growth this year: IMF

While India and China are expected to contribute more than 50 per cent to global growth, the IMF said the rest of Asia will contribute an additional quarter.

The re-opening of China, which has strong trade and tourism linkages, has paved the way for “a faster-than-expected rebound in activity,” the agency said.

“Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are all back to their robust pre-pandemic growth,” the IMF said.

The IMF said, quoting its analysis, “For every percentage point of higher growth in China, output in the rest of Asia rises by around 0.3 per cent,” adding, “…benefiting from these developments, prospects for Asia’s advanced economies are more mixed.”

The global financial agency said Asia’s inflation is poised to moderate this year.

“There are encouraging signs that headline inflation peaked during the second half of last year, though core inflation is proving more persistent and has yet to ease definitively,” the IMF said in its blog post.

“We expect inflation to return to central bank targets sometime next year amid an easing of financial and commodity headwinds.”

However, the IMF warned that central banks need to remain alert even as inflation is moving in the right direction but core inflation is still running above target.

The inflation in India peaked at a three-month high of 6.25 per cent, mainly contributed by an increase in prices of goods and commodities. This came after the Reserve Bank of India increased its repo rate by 25 basis points to 6.25 per cent on February 8.

As January inflation data has made analysts predict another rate hike by the RBI in April, the IMF also stated that central banks might need to increase interest rates further.

Central banks “may need to hike rates further if core inflation does not show clear signs of returning to target,” the agency said.