By Leika Kihara

TOKYO, Reuters – The Asian region is facing a “stagflationary outlook” amid considerable uncertainty. Economic growth has been lower than expected, and inflation has been higher. This was according to a Senior International Monetary Fund official on Tuesday.

Although Asia has a limited trade and financial relationship to Russia and Ukraine, it will still be exposed through increased commodity prices and slower growth of European trading partners. Anne-Marie Gulde-Wolf is the acting director for the IMF’s Asia and Pacific Department.

Gulde Wolf stated that “these headwinds to economic growth occur at a moment when policy space is limited.” He also said that Asian policymakers would have to make a tough choice between responding to rising inflation and slowing growth.

She stated that “Monetary tightening is required in many countries with the pace of tightening dependent on domestic inflation developments as well as external pressures.”

Gulde Wolf stated that the U.S. Federal Reserve’s steady interest rate increases pose a problem for Asian policymakers due to their huge debt in dollars.

The IMF’s latest forecast for this month stated that Asia’s economy will grow 4.9% in 2014, a decrease of 0.5 percent from the January projection.

Gulde Wolf said that Asia faces risks including an increase in violence in Ukraine and new COVID-19 waves. He also warned of a quicker than anticipated Fed rate hike trajectory. Also, China’s lockdown may be prolonged or worsened.

There is significant uncertainty in our baseline forecasts with risk tilted towards the downside. She said.