IMF cuts growth forecast for Asia as headwinds loom

Asia is still the world's most dynamic economic region but faces severe headwinds from a weak global recovery, flagging trade and the impact of a slowing China.

That is the assessment of the International Monetary Fund (IMF) in its latest Regional Economic Outlook for Asia and the Pacific.

China and Japan's economies are expected to slow sharply over the next two years, the IMF said yesterday.

While external demand remains sluggish, domestic demand across the region continues to show resilience, driven by low unemployment, growth in disposable incomes, lower commodity prices and macroeconomic stimulus.

Asia faces a number of external challenges, including slow growth in advanced economies, a broad slowdown across emerging markets, weak global trade, persistently low commodity prices and increasingly volatile global financial markets, said the IMF.

"Asia is impacted by the still weak global recovery and by the ongoing and necessary rebalancing in China," said Mr Changyong Rhee, the director of the Asia and Pacific Department at the IMF.

DOMESTIC RESILIENCE

Asia is impacted by the still weak global recovery and by the ongoing and necessary rebalancing in China. But domestic demand has remained remarkably resilient throughout most of the region, supported by rising real incomes, especially in commodity importers, and supportive macroeconomic policies in many countries.

MR CHANGYONG RHEE, the director of the Asia and Pacific Department at the IMF

"But domestic demand has remained remarkably resilient throughout most of the region, supported by rising real incomes, especially in commodity importers, and supportive macroeconomic policies in many countries."

The fund predicted growth in Asia to come in at 5.3 per cent this year and next, down from its previous forecast of 5.4 per cent.

China's economy, the world's second biggest and a key driver of global growth, is forecast to moderate to 6.5 per cent this year and 6.2 per cent in 2017. The figures are well down from the 6.9 per cent seen in 2015, which was the slowest rate in a quarter of a century but slightly better than the IMF's October outlook, Agence France- Presse reported.

The fund noted that China's leadership is trying to rebalance the economy away from manufacturing and investment to services and consumption.

Chia Yan Min

A version of this article appeared in the print edition of The Straits Times on May 04, 2016, with the headline 'IMF cuts growth forecast for Asia as headwinds loom'. Print Edition | Subscribe