## 1. Asia Excluding China

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### Overview
- Global context: "Global growth is expected to remain steady, with the momentum in high-tech sectors set to slow but to continue to partly offset the drag elsewhere."
- Headline global forecasts: "At 3.3 percent for 2026 and 3.2 percent for 2027, the forecasts mark a slight deceleration from the estimated 3.3 percent achieved in 2025."
- Role of policy: "Monetary policy rates in the United Kingdom and the United States are expected to continue to decline, though at varying speeds, whereas the IMF staff expects the policy rate in the euro area to remain unchanged and Japan to raise its policy rate gradually."
- Fiscal stance in advanced economies: "Fiscal policy in advanced economies, particularly Germany, Japan, and the United States, is expected to be stimulative in the near term."

### Growth projections and revisions for key economies in Asia Excluding China
- Japan:
  - "Growth is projected to moderate from 1.1 percent in 2025 to 0.7 percent in 2026 and to 0.6 percent in 2027."
  - Revision drivers: "This marks a small upward revision relative to the October figure, reflecting in part the fiscal stimulus package announced by the new government."
- India:
  - "Growth is revised upward by 0.7 percentage point to 7.3 percent for 2025."
  - Near-term outlook: "Growth is projected to moderate to 6.4 percent in 2026 and 2027 as cyclical and temporary factors wane."
  - Revision drivers: "reflecting the better-than-expected outturn in the third quarter of the year and strong momentum in the fourth quarter."
- China (for context and spillovers):
  - "Growth in 2025 for China is revised upward by 0.2 percentage point to 5.0 percent."
  - "Growth for 2026 is also revised upward by 0.3 percentage point to 4.5 percent."
  - "The economy’s growth rate is expected to decelerate to 4.0 percent in 2027."
  - Policy drivers: "The revision reflects stimulus measures and additional policy bank lending for investment" and "the lower US effective tariff rates on Chinese goods as a result of the yearlong trade truce agreed to in November and stimulus measures that are assumed to be implemented over two years."

### Policy and sectoral considerations affecting the region
- Fiscal policy:
  - Japan: "fiscal stimulus package announced by the new government" contributes to revisions.
  - Advanced economies' stimulus (including Japan) is expected to be "stimulive in the near term," which may influence external demand and financial conditions for Asia Excluding China.
- Trade and tariffs:
  - Trade developments affecting the region include "the lower US effective tariff rates on Chinese goods as a result of the yearlong trade truce agreed to in November," which help explain upward revisions for China and have potential spillovers.
- Technology-driven momentum:
  - "momentum in high-tech sectors set to slow but to continue to partly offset the drag elsewhere," affecting regional demand for advanced and technology-intensive exports.

### Key statistics (preserved exactly from source)
- Global: "3.3 percent for 2026 and 3.2 percent for 2027" (global forecasts)
- Advanced economies: "1.8 percent in 2026 and 1.7 percent in 2027" (growth projected)
- United States: "expand by 2.4 percent in 2026" and "remain solid at 2.0 percent in 2027"; "This 0.3 percentage point upward revision from the October forecast"
- Japan: "1.1 percent in 2025", "0.7 percent in 2026", "0.6 percent in 2027"
- India: "7.3 percent for 2025", "6.4 percent in 2026 and 2027"
- China: "5.0 percent" (2025), "4.5 percent" (2026), "4.0 percent" (2027); revisions of "0.2 percentage point" for 2025 and "0.3 percentage point" for 2026

*Source: International Monetary Fund, World Economic Outlook Update, January 2026.*

### 1. Asia Excluding China

### 1. Asia Excluding China

### Overview
- Global context: "Global growth is expected to remain steady, with the momentum in high-tech sectors set to slow but to continue to partly offset the drag elsewhere."
- Headline global forecasts cited: "At 3.3 percent for 2026 and 3.2 percent for 2027, the forecasts mark a slight deceleration from the estimated 3.3 percent achieved in 2025."
- Role of policy: "Monetary policy rates in the United Kingdom and the United States are expected to continue to decline, though at varying speeds, whereas the IMF staff expects the policy rate in the euro area to remain unchanged and Japan to raise its policy rate gradually."  
- Fiscal stance in advanced economies: "Fiscal policy in advanced economies, particularly Germany, Japan, and the United States, is expected to be stimulative in the near term."

### Growth projections and revisions for key economies in Asia Excluding China
- Japan:
  - "Growth is projected to moderate from 1.1 percent in 2025 to 0.7 percent in 2026 and to 0.6 percent in 2027."
  - Revision drivers: "This marks a small upward revision relative to the October figure, reflecting in part the fiscal stimulus package announced by the new government."
- India:
  - "Growth is revised upward by 0.7 percentage point to 7.3 percent for 2025."
  - Near-term outlook: "Growth is projected to moderate to 6.4 percent in 2026 and 2027 as cyclical and temporary factors wane."
  - Revision drivers: "reflecting the better-than-expected outturn in the third quarter of the year and strong momentum in the fourth quarter."
- China (for context and spillovers):
  - "Growth in 2025 for China is revised upward by 0.2 percentage point to 5.0 percent."
  - "Growth for 2026 is also revised upward by 0.3 percentage point to 4.5 percent."
  - "The economy’s growth rate is expected to decelerate to 4.0 percent in 2027."
  - Policy drivers: "The revision reflects stimulus measures and additional policy bank lending for investment" and "the lower US effective tariff rates on Chinese goods as a result of the yearlong trade truce agreed to in November and stimulus measures that are assumed to be implemented over two years."

### Policy and sectoral considerations affecting the region
- Fiscal policy:
  - Japan: "fiscal stimulus package announced by the new government" contributes to revisions.
  - Advanced economies' stimulus (including Japan) is expected to be "stimulive in the near term," which may influence external demand and financial conditions for Asia Excluding China.
- Trade and tariffs:
  - Trade developments affecting the region include "the lower US effective tariff rates on Chinese goods as a result of the yearlong trade truce agreed to in November," which help explain upward revisions for China and have potential spillovers.
- Technology-driven momentum:
  - "momentum in high-tech sectors set to slow but to continue to partly offset the drag elsewhere," affecting regional demand for advanced and technology-intensive exports.

### Key statistics (preserved exactly from source)
- Global: "3.3 percent for 2026 and 3.2 percent for 2027" (global forecasts)
- Advanced economies: "1.8 percent in 2026 and 1.7 percent in 2027" (growth projected)
- United States: "expand by 2.4 percent in 2026" and "remain solid at 2.0 percent in 2027"; "This 0.3 percentage point upward revision from the October forecast"
- Japan: "1.1 percent in 2025", "0.7 percent in 2026", "0.6 percent in 2027"
- India: "7.3 percent for 2025", "6.4 percent in 2026 and 2027"
- China: "5.0 percent" (2025), "4.5 percent" (2026), "4.0 percent" (2027); revisions of "0.2 percentage point" for 2025 and "0.3 percentage point" for 2026

*Source: International Monetary Fund, World Economic Outlook Update, January 2026.*

### 4.4 percent in 2025 to 4.6 percent in 2026 and 2027, supported by macroeconomic stabilization

### 4.4 percent in 2025 to 4.6 percent in 2026 and 2027, supported by macroeconomic stabilization

### Global and regional growth projections
- Global growth: World Output—2024: 3.3; 2025: 3.3; 2026: 3.3; 2027: 3.2 (percent change, year over year).
- Latin America and the Caribbean: growth projected to moderate to 2.2 percent in 2026 and bounce to 2.7 percent in 2027.
- Emerging and developing Europe: sharp slowdown to 2.0 percent in 2025 expected to reverse, expanding at an average rate of 2.3 percent in 2026 and 2.4 percent in 2027.
- Advanced Economies: 2024: 1.8; 2025: 1.7; 2026: 1.8; 2027: 1.7.
- Emerging Market and Developing Economies: 2024: 4.3; 2025: 4.4; 2026: 4.2; 2027: 4.1.

### Trade, investment, and external balances
- World trade volume (goods and services): 2024: 3.6; 2025: 4.1; 2026: 2.6; 2027: 3.1 (percent change).
- Dynamics reflect front-loading and trade flow adjustments to new policies; fading effect of shifting trade policies supports regional rebounds.
- Over the medium term, expansionary fiscal packages in economies with current account surpluses are expected to contribute to declining global imbalances, while a technology-driven business investment surge continues to attract capital flows to the United States.

### Inflation dynamics
- Global inflation: headline inflation projected to fall to 3.8 percent in 2026 and 3.4 percent in 2027.
- World Consumer Prices: 2024: 5.8; 2025: 4.1; 2026: 3.8; 2027: 3.4.
- Country specifics noted:
  - United States: US core inflation projected to return to the country’s 2 percent target during 2027.
  - Euro area: headline inflation projected to hover around 2 percent; core inflation projected to decline to that level in 2027.
  - Japan: inflation expected to moderate in 2026 and converge toward the country’s target in 2027.
  - China: inflation projected to start rising from low levels.
  - India: inflation expected to go back to near target levels after a marked decline in 2025.

### Risks, scenarios, and potential shocks
- Downside risks are tilted: resilience driven by a few sectors could be disrupted by sectoral shocks or broader risk factors.
- AI-related downside scenario: if AI-driven productivity gains disappoint, a moderate correction in AI stock valuations combined with tightening financial conditions could lower global growth by 0.4 percent in 2026 relative to baseline (reference scenario from October 2025 WEO).
- Trade-policy risks: additional sector-specific tariffs or nontariff measures on critical inputs (for example, rare earth minerals) could create supply bottlenecks and amplify inflationary effects.
- Geopolitical escalation: tensions (Middle East, Ukraine, Asia, Latin America) could trigger negative supply shocks, disrupt shipping routes and critical supply chains, and drive commodity prices higher.
- Financial and fiscal fragilities: elevated public debt in systemically important economies could raise borrowing costs, tighten financial conditions, and amplify volatility; increased reliance on price-sensitive investors heightens dislocation risks.
- Upside scenario: rapid adoption of AI could lift global growth by as much as 0.3 percentage points in 2026 and between 0.1 and 0.8 percentage points per year in the medium term, conditional on adoption speed and AI readiness globally. Benefits depend on complementary policies (e.g., relaxing power supply constraints, scaling critical intermediate inputs, labor market programs).

### Policy recommendations
- Fiscal policy:
  - Rebuild fiscal capacity; maintain public debt sustainability with credible medium-term fiscal consolidation.
  - Bolster fiscal revenues, rationalize expenditures, and strengthen expenditure efficiency; crowd in private investment.
  - Use automatic stabilizers symmetrically over the business cycle; any discretionary measures should be strictly targeted, temporary, and offset by nonpriority spending cuts or new revenue sources.
  - Handle broad-based subsidies and industrial policies with care; ensure industrial policies are precisely targeted, address defined market failures, and are subject to periodic cost-benefit analyses.
- Monetary policy and central banking:
  - Central banks should tailor policy to uphold price stability: forecast-centered approaches where inflation at/near target; cautious, data-dependent stance where inflation above target.
  - In economies facing adverse supply shocks, monetary easing only with robust evidence of anchored inflation expectations and inflation returning toward target.
  - Preserve legal and operational central bank independence to avoid fiscal dominance and anchor inflation expectations.
  - Clear, consistent communication is crucial to navigate uncertainty.
- Financial stability and prudential oversight:
  - Strengthen prudential oversight; expand use of scenario analysis; prepare contingency plans to deploy liquidity backstops when needed.
  - Consider temporary foreign exchange interventions or capital flow management tools in select cases, alongside appropriate monetary and fiscal policy stances.
- Trade and multilateral cooperation:
  - Reduce policy-driven uncertainty; establish transparent and coherent trade policy frameworks and pragmatic cooperation.
  - Advance multilateral efforts on global commons, update international regulations, and consider regional/plurilateral solutions where appropriate.
  - Align trade-friction easing with efforts to address excessive external imbalances resulting from domestic policies.
- Structural reforms and technology harnessing:
  - Accelerate reforms to upskill labor forces, reduce barriers to mobility, streamline business regulation, enhance competition, and promote innovation to lift potential output and resilience.
  - Harness technological progress through digital transformation, AI adoption, and investment in renewables and energy-efficient systems—aligned with rebalancing the global economy.
  - Specific country priorities highlighted: fortify the EU single market, chart credible fiscal consolidation to put US public debt on a decisively downward path, and advance China’s reforms to strengthen social protection and scale back unwarranted industrial policy support.

### Key numerical highlights from projections and notes
- World Output (percent change, year over year): 2024: 3.3; 2025: 3.3; 2026: 3.3; 2027: 3.2.
- World Consumer Prices: 2024: 5.8; 2025: 4.1; 2026: 3.8; 2027: 3.4.
- World trade volume (goods and services): 2024: 3.6; 2025: 4.1; 2026: 2.6; 2027: 3.1.
- United States growth: 2024: 2.8; 2025: 2.1; 2026: 2.4; 2027: 2.0.
- China growth (table): 2024: 5.0; 2025: 5.0; 2026: 4.5; 2027: 4.0.
- India (FY basis note): reported 6.5 for 2024 (FY 2024/25), 7.3 for 2025, 6.4 for 2026, 6.4 for 2027; calendar-year projections noted as 6.3 percent for 2026 and 6.5 percent for 2027 in the footnote.
- Oil price assumption (based on futures markets as of November 20, 2025): $62.13 for 2026 and $62.17 for 2027.
- AI upside potential: global growth may be lifted by as much as 0.3 percentage points in 2026 and between 0.1 and 0.8 percentage points per year in the medium term.
- AI-related downside reference: global growth declines by 0.4 percent in 2026 relative to baseline under the October 2025 WEO scenario that includes a moderate correction in AI stock valuations.

*Source: World Economic Outlook Update, International Monetary Fund | January 2026.*

### Box 1. GLOBAL FINANCIAL STABILITY UPDATE

### Box 1. GLOBAL FINANCIAL STABILITY UPDATE

### Financial conditions and market sentiment
- Global financial conditions have remained broadly accommodative since the October 2025 Global Financial Stability Report (GFSR).
- Investor sentiment supports high equity prices and historically narrow credit spreads, driven by expectations of further monetary policy easing.
- Favorable financing conditions and subdued currency volatility have supported portfolio flows to emerging markets, with record international sovereign bond issuance and increased access for many lower-rated sovereigns, alongside steady inflows to local currency debt markets.

### Equity markets and artificial intelligence (AI) sector risks
- Increased equity market volatility in November reflected market concerns about future returns in the AI sector.
- AI companies now account for a sizable share of stock market capitalization and drive much of corporate capital expenditure growth.
- Market participants are focused on whether these firms can deliver sustained AI revenue acceleration to justify lofty valuations.
- Rising reliance on debt financing, reflected in high debt ratios and widening credit default spreads of some firms, raises additional concerns.
- Circular investment and procurement arrangements among large AI players create opacity and concentration risk, making ownership structures and valuations harder to assess.

### Sovereign debt dynamics and market functioning
- Heavy issuance and evolving investor appetite are pushing sovereign debt toward shorter maturities, reshaping market dynamics in major economies.
- Global sovereign debt is projected to exceed 100 percent of GDP by the decade’s end.
- Lower policy rates have helped steady longer-term yields, even as term premiums rise amid heavy issuance and shifting investor appetite away from long-duration assets.
- Dutch pension funds are shortening portfolio durations, and traditional UK buyers, such as pension funds, are ceding ground to hedge funds.
- In both the UK and the US, issuance now tilts toward shorter maturities.
- Short-term rates have been rising, with bouts of volatility, prompting periodic use of central bank liquidity and raising concerns about market functioning.

### Corporate defaults and nonbank lending vulnerabilities
- Recent corporate defaults highlighted concerns about underwriting standards and transparency in credit markets.
- Investors viewed the failures of Tricolor Holdings and First Brands as isolated, but these defaults exposed weaknesses:
  - Opaque financing structures
  - Weak governance
  - Lax underwriting standards
- These issues have become more common with the rapid growth of nonbank lenders, especially private credit.
- Vulnerabilities in this sector could become more pronounced if market conditions tighten or investor risk appetite wanes.

### Figure 1.1 — Financial Conditions Index (descriptive)
- The IMF Financial Conditions Index (FCI) is designed to capture the pricing of risk and incorporates various pricing indicators, including real house prices; balance sheet or credit growth metrics are not included.
- A lower (higher) FCI score implies easier (tighter) financial conditions.
- The shaded area in the figure shows daily FCIs estimated using available high-frequency market data.
- Labels appearing in the figure: –1.5, –1.0, –0.5, 0.0, 0.5, 1.0; time markers include 2022:Q1, 22:Q3, 23:Q1, 23:Q3, 24:Q1, 24:Q3, 25:Q1, 25:Q3; specific dates Oct. 10, Oct. 20, Oct. 30, Nov. 9, Nov. 17; and reference Oct. 2025 GFSR.
- Series shown: United States; Euro area; Other AEs; China; EMs excluding China.
- Sources: Bloomberg Finance L.P.; and IMF staff calculations.

### Annex Table 1 — Selected Economies: Real GDP Growth (Percent change) and Differences from October 2025 WEO Projections
- Note: The selected economies account for approximately 83 percent of world output. WEO = World Economic Outlook.
- Difference based on rounded figures for the current and October 2025 WEO forecasts.
- Data and forecasts for economies marked with 2/ are presented on a fiscal year basis.

- Argentina: –1.3 4.5 4.0 4.0 0.0 0.0
- Australia: 1.0 1.9 2.1 2.2 0.0 0.0
- Brazil: 3.4 2.5 1.6 2.3 –0.3 0.1
- Canada: 2.0 1.6 1.6 1.9 0.1 0.0
- China: 5.0 5.0 4.5 4.0 0.3 –0.2
- Egypt 2/: 2.4 4.4 4.7 5.4 0.2 0.7
- France: 1.1 0.8 1.0 1.2 0.1 0.0
- Germany: –0.5 0.2 1.1 1.5 0.2 0.0
- India 2/: 6.5 7.3 6.4 6.4 0.2 0.0
- Indonesia: 5.0 5.0 5.1 5.1 0.2 0.1
- Iran 2/: 3.7 0.3 1.1 1.6 0.0 0.0
- Italy: 0.7 0.5 0.7 0.7 –0.1 0.1
- Japan: –0.2 1.1 0.7 0.6 0.1 0.0
- Kazakhstan: 5.0 6.2 4.4 4.2 –0.4 0.0
- Korea: 2.0 1.0 1.9 2.1 0.1 –0.1
- Malaysia: 5.1 4.6 4.3 4.3 0.3 0.3
- Mexico: 1.4 0.6 1.5 2.1 0.0 0.1
- The Netherlands: 1.1 1.7 1.2 1.4 0.0 0.0
- Nigeria: 4.1 4.2 4.4 4.1 0.2 0.1
- Pakistan 2/: 2.6 3.0 3.2 4.1 –0.4 0.0
- Philippines: 5.7 5.1 5.6 5.8 –0.1 –0.2
- Poland: 3.0 3.3 3.5 2.7 0.4 –0.2
- Russia: 4.3 0.6 0.8 1.0 –0.2 –0.1
- Saudi Arabia: 2.6 4.3 4.5 3.6 0.5 0.4
- South Africa: 0.5 1.3 1.4 1.5 0.2 0.0
- Spain: 3.5 2.9 2.3 1.9 0.3 0.2
- Thailand: 2.5 2.1 1.6 2.2 0.0 0.0
- Türkiye: 3.3 4.1 4.2 4.1 0.5 0.4
- United Kingdom: 1.1 1.4 1.3 1.5 0.0 0.0
- United States: 2.8 2.1 2.4 2.0 0.3 –0.1

*Source: IMF staff calculations.*

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_Source: https://www.imf.org/-/media/files/publications/weo/2026/update/january/english/text.pdf_