Asian economies resilient enough to endure turbulence, IMF says

SEOUL – Asian economies are resilient enough to ride out turbulence, International Monetary Fund (IMF) economists said, underscoring the importance of taking turmoil in stride at a time when the region faces various internal risks in addition to

President-elect Donald Trump’s return to the White House.

Asia remains a key engine of global economic growth, but 2024 has seen a rise in uncertainties that span a range of factors.

South Korea’s bungled martial law command,

Japan’s surprising leadership transition and the threat of tariffs from Trump have made the future harder to predict in the region.

While declining to comment on specific countries and political situations, IMF Asia-Pacific division chief Alasdair Scott highlighted the resilience of the region and said it maintains a great deal of upside growth potential. 

“We’ve already seen, actually, that there is that resilience,” he said on Dec 9 in an interview in Seoul, after earlier pointing to the brevity of the August market turmoil that followed the Bank of Japan’s July rate cut.

There are challenges to navigate, including longer-term issues such as demographics and labour, but “there’s a lot of upside growth potential”, he said. 

Mr Scott and Dr Johannes Wiegand, chief IMF economist for the Asia-Pacific, are visiting Seoul this week to attend a joint conference with the Korea Institute for International Economic Policy on Trump and the world economic outlook. 

The latest event rocking the region has been a martial law debacle in South Korea that sparked an opposition campaign to impeach President Yoon Suk Yeol. Mr Yoon has apologised for his Dec 3 decree, which lasted for several hours, and has since left state affairs in the hands of the prime minister and the ruling party.

The Kospi stock index rallied more than 2 per cent on Dec 10, after having tumbled more than 5 per cent since Dec 3. The won strengthened slightly against the US dollar, although it remains stuck near two-year lows after South Korea’s Parliament failed to pass an impeachment motion against Mr Yoon over the weekend. The opposition plans to push for another motion later this week.

“We’ve seen momentary episodes of turbulence, like in early August when the Topix market decreased very rapidly,” Mr Scott said. “But you come back to it a week or two later and things have come back. So on our side, we are trying to take a longer point of view.”

The Bank of Korea (BOK) has stepped up its measures to stabilise markets since the martial law row erupted and pledged “unlimited liquidity” if necessary, in coordination with the government. BOK governor Rhee Chang-yong, however, has dismissed the chance of cutting the benchmark interest rate just to limit the impact from the political turmoil.

The IMF’s Mr Wiegand agrees that the region has “displayed remarkable resilience” and expects it to continue to do so going forward. He also said there is “ample room” for Asian central banks to cut rates further as consumer inflation slows, and the US Federal Reserve is also seen as planning to ease its own monetary policy.

The exchange rate serves as a “shock absorber” and nations should try to make use of it as such, he said.

“Asian economies have developed so much and seem to be so much more resilient than they used to be,” Mr Wiegand said, referring in comparison to the financial crisis of the late 1990s. BLOOMBERG