Regional Economic Outlook: Asia Pacific
Asia: Maintaining Robust Growth amid Heightened Uncertainty
Following robust growth in the first half of 2016, the near-term outlook for Asia remains strong. Accommodative policies and a recent easing of financial conditions will underpin domestic demand, offsetting weak export growth. GDP growth is forecast to be broadly stable at 5.4 percent in 2016 and 5.3 percent in 2017. Asia continues to face downside risks amid headwinds that can significantly impact medium-term growth prospects.
Financial dislocations associated with capital flow volatility, as well as sluggish global growth, are the main global risks. The impact of the “new mediocre” in advanced economies on global trade and growth could have far-reaching implications for Asia’s economic outlook. A bumpier-than-expected transition in China toward a more consumption- and service-sector-oriented economy could also cast a long shadow. More broadly, the strong growth masks a number of fault lines and vulnerabilities, and bolstering growth prospects is a priority. Given low inflation and fiscal space in most economies, policymakers should judiciously use fiscal and monetary policies to support growth and accelerate structural reforms. This multipronged strategy would also rely on macroprudential policies to safeguard financial stability and exchange rate flexibility to facilitate external adjustment. In combination, this comprehensive and consistent policy mix would contribute to more balanced growth, helping solidify Asia’s position as the global growth leader.