Inflation, debt among key challenges for global economy despite raised growth forecast: Senior IMF official

“There’s been cases in history where central banks have lifted up the fight too soon, only to see expectations sort of normalise above target levels, and then it’s much harder to fight it later on,” he said.

Inflation remains one of the main challenges, said Mr Leigh.

“It could be stickier than expected, and then we’d have to have tightening rates, cooling housing markets and slowing growth, even more than we expect,” he explained.

Another challenge is China, which is rebounding this year from last year’s very slow growth. Its real estate sector “poses a risk”, which could have a negative effect on other countries, said Mr Leigh.

DEBT “A SOURCE OF CONCERN”

“Debt is very much a source of concern, especially in lower-income countries. And the lower growth and the higher interest rates mean that several of them – actually more than half – are close to default or already in debt distress,” he said.

Mr Leigh said that in Asia, corporate debt and leverage were already rising before the pandemic.

“But now with the slower growth and the higher rates, that’s becoming more and more concentrated in sectors where companies (have) high insolvency risk. And so this is a pocket of vulnerability,” he said.

The banking sector in Asia is well-capitalised, so if they take losses from these companies potentially defaulting, they should be able to absorb them, noted Mr Leigh. However, financial supervisors should still be vigilant, he added.