The International Monetary Fund (IMF) projects a robust, stable outlook for the Asia-Pacific region but also sees continued risks to its economic growth linked to rising domestic and foreign debt.
Asia-Pacific is expected to continue to outperform the rest of the world, its growth to remain steady at 5.6% in 2015 and to ease slightly to 5.5% in 2016, according to the IMF’s Regional Economic Outlook for Asia and the Pacific, published May 7.
“Growth will be driven by domestic demand, underpinned by healthy labor markets, low interest rates, and the recent fall in oil prices. The global recovery, while moderate and uneven, will continue to support Asia’s exports,” said the report’s authors.
Asia’s leading role in world growth is set to continue over the medium term, accounting for nearly 40 percent of global output and contributing nearly two-thirds of global growth. However, the financial institution also sees its potential growth slowing, reflecting weaker productivity gains, and the effects of aging populations and infrastructure bottlenecks in some countries.
Performance across the region is expected to be mixed. China’s economy is slowing to a more sustainable pace—6.8% GDP growth in 2015, and 6.3% in 2016, while growth in Japan is picking up to 1% this year, and 1.2% next year.
India’s growth rate is expected to rise to 7.5% this year and next, making it one of the fastest growing economies in the world.
Within the Association of Southeast Asian Nations (ASEAN), growth rate is pegged at 5.1% in 2015 and 5.3% in 2016. While Malaysia is expected to slow to 4.8% in 2015 and 4.9% in 2016, the Philippines should see growth increase to 6.7% and 6.3%, respectively.
Other projections for the region include, for Brunei, a contraction of 0.5% in 2015 and growth of 2.8% in 2016; Cambodia, 7.2% growth rate this year and the next; Indonesia, 5.2% and 5.5%, respectively; Laos, 7.3% and 7.8%; Myanmar, 8.3% and 8.5%; Singapore, 3% for both years; Thailand, 3.7% and 4%; and Vietnam, 6% and 5.8%, respectively.
Overall, lower commodity prices are a net positive for Asia, although several commodity exporters (Australia, Indonesia, Malaysia, and New Zealand) will be adversely impacted.
The outlook could be vulnerable to adverse events, said the report. This reflects the potential for slower growth in China and Japan, which could spill over to the rest of the region—and the global economy—through trade and financial channels.
Debt levels—including foreign currency-denominated debt—have increased rapidly in recent years, and Asia is now more vulnerable to financial market shocks, and persistent U.S. dollar strength, which would raise the cost of servicing debt, and could curtail demand.
On the other hand, lower energy prices could provide a further boost to Asia’s growth if more of the savings on oil import bills is spent. The report observed that lower oil prices have provided an opportunity to undertake further fiscal reforms aimed at lowering energy subsidies, and measures have been taken in a number of countries, including Malaysia, India, and Indonesia.
The report finds that monetary and fiscal policy settings are broadly appropriate, but boosting resilience and potential growth remain top priorities. The IMF’s Regional Economic Outlook calls for a strong push for structural reforms across most, if not all, economies in the region. In addition to boosting productive capacity, structural reforms can help rebalance growth toward consumption, which remains a priority for some major Asian economies, including China and Korea, it said.
Photo: Philip Roeland
