Asia to grow about 5.4% this year and next: IMF

Washington

ASIA continues to lead global growth and is projected to expand by about 5.4 per cent this year and in 2017. But slowing productivity growth, ageing population, and rising inequality "cast a long shadow" on prospects, according to the International Monetary Fund.

In its latest Asia and Pacific Regional Economic Outlook Update, the IMF said that the "near-term outlook in Asia remains strong and is supported by domestic demand. But global and local risks somewhat cloud the growth horizon".

The report released on Thursday noted that "policymakers in India, China and Korea have outperformed their G-20 peers on structural reform implementation" but notes that "progress on reform across the region has been uneven".

Asia "contributes about 60 per cent to global growth currently, but prospects could be weighed down by China's transition to slower growth and an uneven global recovery," said Changyong Rhee, director of the IMF's Asia and Pacific Department.

Overall, the region registered a slight uptick in growth in 2016, the report noted. "Stock markets are buoyant, and capital continues to flow into Asia, despite a short period of adjustment around the Brexit referendum."

Domestic policies have mostly supported growth, with low interest rates and fiscal stimulus in many countries. Asia's exports are set to benefit as global growth is expected to recover in 2017.

"As China rebalances its economy from investment towards consumption, and from manufacturing to services, GDP growth is projected to be 6.6 per cent in 2016, before moderating to 6.2 per cent in 2017," said the IMF.

"While a stronger-than-expected fiscal stimulus and credit support help the near-term outlook, these steps could delay certain critical reforms, particularly the restructuring of state-owned enterprises and reining in credit growth."

Driven mainly by public investment and consumption, growth in Japan has been slightly revised up to 0.5 per cent. Momentum is expected to continue in 2017, with the economy expanding by 0.6 per cent, mostly owing to fiscal stimulus, the report said.

"As the stimulus gradually fades, the impact of the higher private investment linked to the 2020 Olympics would kick in. Nevertheless, Japan's medium-term outlook remains weak, primarily due to its shrinking labour force."

India, meanwhile, "remains a regional and global dynamo, with its economy projected to grow at 7.6 per cent in 2016-17. Growth in India relies on domestic demand, lower energy prices, and a progress on investment-friendly reforms."

For other emerging economies in Asia, prospects remain strong, said the report . "But they depend in part on external developments, given the high exposure to global trade and finance.

"The woes of the global economy still dominate the medium-term outlook. The subdued and uneven global recovery and sluggish global trade could undermine Asia's growth prospects."

Monetary policy divergence in advanced economies could translate into volatile financial conditions in Asia, especially for economies that rely more on external financing, the IMF suggested.

"Asia also faces the spectre of spillovers from secular stagnation trends in advanced economies, which would likely lead to weaker investment in the region."

China's economic rebalancing "could be bumpier-than-expected, creating negative spillovers to regional trade and growth. Escalating geopolitical tensions and domestic policy uncertainty could disrupt trade and financial flows."

"Across most of the region, monetary policies need to stay supportive. Interest rates should be lowered if growth falls, provided that inflation is low and financial stability is not compromised."

Further structural reforms are "crucial not only for bolstering growth but to make it more inclusive, and to make Asian economies less vulnerable," the IMF suggested.

"China should continue its efforts to rebalance. Japan should prioritise mitigating the effects of ageing on potential growth, reducing labour market duality, and encouraging more dynamism in the corporate sector."

Emerging and frontier economies in Asia meanwhile "need reforms to speed up investment in infrastructure and increase productivity."