In an exclusive interview with CNBC-TV18, IMF Director for Asia and the Pacific region, Krishna Srinivasan, discussed the potential impacts of the Israel-Hamas conflict on the Asia-Pacific region. He noted that a 10% increase in oil prices could lead to a 0.15% reduction in global GDP the following year and a 0.4 percentage point increase in inflation. This effect is expected to be more significant in Asia due to its status as an oil-importing region. Despite global challenges, economic activity in the Asia-Pacific region remains robust, contributing two-thirds of global growth in 2023. The IMF projects a 4.6% growth in the region for 2023, moderating to 4.2% in 2024, with risks tilted downwards. China and India are anticipated to jointly contribute to about half of the world’s growth in both 2023 and 2024.
Srinivasan also highlighted concerns about rising global debt, stating that the Asia-Pacific region’s share had increased to 40% from 25% pre-global financial crisis. He emphasized that a prolonged period of higher interest rates could raise borrowing costs, impacting debt servicing differently based on each country’s balance sheet. India, with reduced non-performing assets and strong financial buffers, is in a favorable position, but Srinivasan cautioned that rising interest rates might stress corporates’ ability to repay debt, potentially affecting the financial sector.
Additionally, Srinivasan discussed the risks associated with rising protectionism and the “China+1” strategy, mentioning the potential reduction in global GDP due to friend-shoring and re-shoring. While some countries might benefit from short-term trade diversion, long-term effects could lead to reduced global demand. Regarding India’s stance on import restrictions and the Production-Linked Incentive (PLI) scheme, Srinivasan emphasized the importance of eliminating restrictions on imports of laptops and IT equipment. He highlighted India’s progress in digitalization and creating digital public infrastructure, emphasizing the need to remove such restrictions to reach the country’s full potential.