The International Monetary Fund (IMF) has issued a stark warning about growing economic risks across Asia, pointing to challenges like intensifying trade conflicts, China’s slowing property market, and the potential for global market disruptions.
These factors, compounded by regional vulnerabilities, could destabilize the continent’s economic growth, according to the IMF’s latest regional economic outlook.
With China’s slowdown posing a direct threat to neighboring economies with similar export profiles, the IMF is urging decisive policy action from Beijing to foster a demand-driven recovery and stabilize the region’s outlook.
In its latest projections, the IMF forecasts Asia’s economy to grow by 4.6% in 2024 and 4.4% in 2025, a slight upgrade from its April estimates but still a decline from the 5% growth seen in 2023.
The Fund cautions, however, that risks remain skewed to the downside.
These risks include potential economic shocks from past monetary tightening and the lingering impact of geopolitical tensions, which may hinder global demand and escalate trade costs.
“An acute risk is the escalation in tit-for-tat tariffs among major trade partners,” the report notes, warning that such retaliatory measures would fragment trade relationships and slow economic momentum across Asia.
The China factor
China’s role in this outlook is significant.
The IMF emphasized the need for China to manage its property sector adjustment and boost consumer demand to prevent spillover effects on other economies.
A sharper-than-anticipated downturn in China could reverberate globally, and the IMF has urged Beijing to prioritize policies that support internal demand to buffer against regional and global economic vulnerabilities.
While these challenges shape the economic landscape, international leaders also expressed concerns at the IMF and World Bank’s annual meeting last week about the potential ripple effects of a change in US leadership.
Should Donald Trump return to office, his proposed 10% tariff on all imports, and a staggering 60% on Chinese imports, could severely disrupt global supply chains, analysts warn.
Such tariffs would likely raise trade costs significantly and undermine regional growth.
What about Japan?
The IMF also pointed to Japan, advising it to balance its fiscal policy carefully as it faces its own set of economic pressures.
With Japan’s central bank beginning to raise interest rates, IMF Asia-Pacific Director Krishna Srinivasan stressed that Japan should fund new spending within existing budgets rather than incur additional debt.
Prime Minister Shigeru Ishiba’s latest spending package could provide relief for households facing higher costs, but the IMF insists this support must be targeted and fiscally responsible.
On monetary policy, the Bank of Japan (BOJ) faces a delicate balancing act as it begins adjusting rates.
The BOJ has maintained ultra-low rates but signals suggest it may incrementally raise them if Japan approaches its 2% inflation target sustainably.
BOJ Governor Kazuo Ueda reiterated that rate hikes would proceed cautiously and be driven by inflation data, underscoring the BOJ’s commitment to a gradual, data-dependent approach.
The IMF’s regional forecast sheds light on the complex interplay of risks shaping Asia’s economic trajectory, from China’s property crisis and potential US trade shifts to Japan’s debt strategies amid rising interest rates.
The IMF’s call for targeted fiscal policies and careful monetary adjustments across the region highlights the urgent need for coordinated action to navigate these growing challenges.
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