(Bloomberg) -- Asia faces the biggest potential fallout from rising geopolitical tensions, according to a senior regional official at the International Monetary Fund, after China held military drills around Taiwan.
“Geofragmentation risks have risen quite sharply over the last five years, and have been accentuated by the war in Ukraine,” Krishna Srinivasan, director of the IMF's Asia and Pacific Department, told Bloomberg TV on Wednesday. “If those risks rise, then Asia risks to lose the most among all the regions in the world.”
The potential for Taiwan, the self-governing democracy Beijing claims as its own, to become an international flashpoint was again highlighted by China's response to President Tsai Ing-wen's meeting with House Speaker Kevin McCarthy during a stop in the US last week.
Read: China Tries to Reassure Taiwan Businesses as Military Drills End
Taiwan detected 91 People's Liberation Army aircraft and 12 warships in its surroundings late Monday, with a record 54 flights entering its sensitive air-defense identification zone. The military drills ran for three days, and PLA vessels remained in the area afterward.
Yet at the same time, Asia is one of the bright spots in the global economy. The IMF predicts the region will grow 4.6% this year, a 0.3 percentage-point upgrade on its October forecasts, according to the World Economic Outlook. The improvement is underpinned by China's reopening following the scrapping of Beijing's harsh Covid Zero policy.
“We have China rebounding much faster than we anticipated, so both mobility and consumption are projected to grow faster,” Srinivasan.
“The US and Europe account for 20% of Asia's exports, they're slowing, so that's an offset. But China is compensating for that.”
Also: China Bets $1.8 Trillion of Construction Will Boost Economy
Yet over the medium-term, the world's second largest economy also faces major challenges, with Srinivasan highlighting that the fund has revised its medium-term growth forecasts for China to below 4%.
“There again it's a question of productivity, it's a question of aging population,” he said of the challenges confronting the vast economy.
--With assistance from Kathleen Hays, Haidi Lun and Shery Ahn.
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