By Fabiana Negrin Ochoa
Asia-Pacific economies seem to be weathering the impact of high interest rates, weak global demand and other headwinds rather well, the IMF says as it upgrades its growth forecast for the region.
"With rapid disinflation and resilient growth, Asia and the Pacific is closing in on a soft landing," the International Monetary Fund said in a report.
After surprisingly strong growth in the second half of last year, the IMF now sees the region expanding 4.5% this year--up 0.3 percentage point from its forecast last October.
Though that would mark a slowdown from 5% in 2023, the region "remains inherently dynamic and accounts for about 60% of global growth," said Krishna Srinivasan, director of the IMF's Asia and Pacific Department.
Fortunes will likely diverge across markets as a myriad of one-off factors come into play, such as the path of inflation.
Growth in Asia's advanced economies is tipped to edge down to 1.6% in 2024 from 1.7% in 2023, the IMF said. In 2025, the pace is seen picking up to 1.8%. India and the Philippines will be engines for emerging Asia, as growth in both countries continues to surprise, fueled by robust domestic demand.
However, a domino effect could come from China.
China's economy is projected to slow to 4.6% percent in 2024 from 5.2% in 2023, and then further to 4.1% in 2025. Culprits include continued weakness in real estate, subdued productivity growth and an aging population. This slowdown could result in negative ripple effects, possibly hindering regional growth next year, which the IMF forecasts at 4.3%.
Still, if China executes better-than-expected policy support, that could provide a positive spillover effect for the region, the IMF notes.
"China is a source of both upside and downside risks," Srinivasan said.
Policies aimed at boosting the property sector and domestic demand will both help the country and its neighbors, in the IMF's view. But sectoral policies contributing to excess capacity will do the opposite, Srinivasan said.
Manufacturing overcapacity in China has made headlines lately, after U.S. Treasury Secretary Yellen raised the matter during a recent visit.
Yellen has pressed officials to scale back industrial production, as Beijing looks to revive its economy by ramping up manufacturing and exports. The concern, shared by some other Western counties, is that a wave of Chinese goods could overwhelm local industries. Beijing has defended its approach and labeled complaints about overcapacity as protectionism.
Chinese regulators have been doubling down on the industrial drive as they hunt for new growth engines. Officials are steering investment toward sectors like electric vehicles and renewable energy, making them top priorities. Efforts to stem the property sector spiral have yet to bear fruit, with home prices still falling, demand still weak and analysts still calling for stronger stimulus.
PMI readings for China earlier Tuesday suggested continued growth in the industrial powerhouse, but a slower pace of expansion highlighted the fragility of the recovery in the world's second-largest economy.
The IMF report also highlighted that disinflation has gathered pace in Asia-Pacific, but progress is uneven.
In places like Australia, inflation is defiantly above target and sticky, while in countries like China and Thailand it has gone too far the other way, raising deflation concerns.
The IMF notes that disinflation brings benefits, raising the prospect of more accommodative monetary policies that makes soft landings more likely. But the recent wave of Asian currency depreciation is complicating matters as interest-rate cuts could exacerbate weakness. Continually shifting expectations about when the U.S. will start its easing cycle muddies things further.
"Asian central banks should continue to focus firmly on domestic price stability and avoid making policy decisions overly dependent on anticipated interest rate moves by the Federal Reserve--even if the latter could reduce exchange-rate volatility," the IMF said.
--Xiao Xiao contributed to this report
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
04-30-24 0449ET
