SINGAPORE: The International Monetary Fund (IMF) has improved its Asia and Pacific region growth forecast to 4.5% this year, up 0.3 percentage points from the previous projection in October, partially due to carryover from stronger 2023 outruns and policy support.
The United Nations agency said the region remains inherently dynamic and will contribute about 60% of global growth this year.
The growth forecast for Asia and the Pacific in 2025 will moderate to 4.3%, unchanged from the October projection, with the structural slowdown in China a key factor, it said.
IMF also improved its 2024 outlook for Malaysia to 4.4%, up 0.1 percentage point from the previous projection.
“Drivers of growth are as diverse as the region, reaching from resilient domestic consumption in most ASEAN countries to strong public investment in China and most notably, in India, as well as a sharp uptick in tourism in the Pacific Island countries,” said IMF Director for Asia and Pacific Department Krishna Srinivasan.
He said this at a hybrid press conference on the release of ‘The Regional Economic Outlook, Asia Pacific: Steady Growth Amid Diverging Prospects’ report.
According to the IMF, inflation is projected to converge to central bank targets by the end of 2024 in most of the region and output gaps are also expected to narrow, conditional on macroeconomic policies staying the course.
“Disinflation has advanced throughout the region albeit at different speeds. In some countries, it remains above target, like Australia and New Zealand. In others, it is at or closer to central bank targets for example, in emerging markets and Japan. However, there are also risks of deflation like Thailand and China,” Srinivasan said.
Meanwhile, the IMF said China continues to be a source of both upside and downside risks to the macroeconomic outlook in the region.
Against this backdrop, Srinivasan noted that policies aimed at addressing stresses in the property sector and boosting domestic demand will help China and the region while sectoral policies contributing to excess capacity will hurt both.
He also said that Asian central banks should continue to focus on domestic price stability and avoid making policy decisions overly dependent on anticipated interest rate moves by the US Federal Reserve as they are now better placed than before to cope with exchange rate movements.
“They should continue to allow the exchange rate to act as a buffer against stocks,” he said.
Meanwhile, in a related blog post, Srinivasan said that Asian governments need to pursue policies to reduce debt and deficits with greater urgency as progress last year fell behind what the agency had originally projected.
“Our forecasts show that on current fiscal plans, debt ratios would stabilise for most economies, provided governments underpin these plans with concrete policies and follow through on them. But even then, debt would remain significantly higher than it was before the pandemic,” he said.
Srivinasan added that governments need to streamline expenditures and raise more revenue to reduce debt levels and curtail debt service costs.
He also noted that policymakers should be cautious to not aggravate trade frictions themselves as global conflict poses additional risks to trade, as proven by the rerouting of ships around Africa to avoid the Red Sea, which raises shipment costs.
“For Asia’s economies, these are unfortunate developments, as many of them are deeply integrated into global supply chains and benefit greatly from trade. Pacific island countries are especially affected, as they are highly dependent on imports and poorly integrated into global shipping networks,” he added.
— BERNAMA
