“Downside risks continue to dominate the economic landscape. In particular, the turning of the credit and financial cycles amid high debt poses a significant risk to growth in Asia, especially because debt levels have increased markedly over the past decade across most of the major economies in the region, including China and Japan,” the IMF said in its regional economic outlook report on Tuesday.
The organisation expects Asia-Pacific to grow 5.3% this year and next. By comparison, global economic growth is forecast at 3.2%.
GDP growth is forecast to decline in the the world’s second and third largest economies:
| 2014 | 2015 | 2016 projected | 2017 projected | |
| China | 7.3% | 6.9% | 6.5% | 6.2% |
| India | 7.2% | 7.3% | 7.5% | 7.5% |
| Japan | 0% | 0.5% | 0.5% | -0.1% |
Source: IMF
China spillover
China was upgraded by 0.2 percentage point for this year and next to 6.5% and 6.2%, respectively.
China’s upside revision was backed by resilient domestic demand and supportive macroeconomic policies, the report said.
However, “although China’s economic transition toward more sustainable growth is critical over the medium term for both China and the global economy, adverse spillovers could emerge in the near term”.
A one percentage point slowdown in Chinese growth translates into a 0.15-0.3 percentage point decline in growth for other Asian countries in the short term, the report stated.
Some commodity exporters and countries with upstream production or value chains, such as Korea, Malaysia and Taiwan, are among those most adversely affected as they are heavily exposed to China’s investment activity.
The IMF also noted that Japan’s Abenomics has been supportive but, “durable gains in growth have so far proved elusive.
“An overreliance on expansionary monetary policy and a weaker exchange rate” would pose the greatest impacts on economies that have strong trade and FDI links with Japan, such as Indonesia and Thailand.
The report recommended that Asian governments push ahead on structural reforms and said that the controversial trade pact, the Trans-Pacific Partnership, could support Asian economic growth.
