Transcript of April 2019 Asia and Pacific Department Press Briefing
IMF News, April 12, 2019
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- Published: April 12, 2019
Regional outlook and headline projections
- Asia Pacific continues to account for more than 60% of the global gross.
- Asia projected to grow by 5.4% in 2019 and 5.4% in 2020 (largely unchanged from last October).
- China growth projection revised to 6.3% for 2019 (up from 6.2% in October).
- Japan projected to expand by 1 percent in 2019.
- India growth expected to pick up to 7.3% this fiscal year.
- Korea growth forecast kept at 2.6% for 2019.
- Australia growth in 2019 projected at 2.1%.
- New Zealand growth in 2019 projected at 2.4%.
- ASEAN growth projected to remain broadly stable at around five percent in the next two years.
- Growth in Pacific Island countries and other small states expected to recover after several natural disasters last year, with significant variation among countries.
Key risk factors highlighted
- Downside risks are "tilted decidedly to the downside," including:
- Faster than expected deceleration in global growth and trade.
- Possibility of renewed trade tensions, including uncertainty around a U.S.-China deal.
- Higher oil prices.
- Global financial market volatility and potential generalized risk-off episodes.
- Specific trade-related concerns:
- If a U.S.-China agreement involves "managed trade" or preferential access, it could crowd out other exporters to China and raise broader worries about the multilateral trading system.
- Markets have priced in some agreement; setbacks could trigger negative market reactions.
- Financial vulnerabilities:
- Tighter global financial conditions would disproportionately affect countries with higher private or public sector leverage.
Country- and policy-specific notes (selected)
- China:
- Revision to 2019 growth to 6.3% reflects assumption that a planned U.S. tariff increase (from 10% to 25% on $200 billion packages assumed last October) will not occur and larger-than-expected fiscal policy plans by Chinese authorities.
- Policy advice: continue deleveraging, expand private sector role, boost consumption, open trade and investment, modernize fiscal/financial/monetary frameworks.
- Fiscal measures supported: reducing Social Security contribution rates and reducing VAT dispersion to boost consumption and jobs; need to make tax system more progressive and boost spending on pension, education, and health.
- Monetary stance viewed as appropriately accommodative given prior reserve requirement cuts and low inflation pressures.
- Japan:
- Growth in 2019 projected at 1 percent; planned consumption tax increase from 8 to 10 percent in October 2019 noted.
- IMF view: consumption tax increases are needed over time to manage high debt and aging-related spending; offsetting measures should protect near-term growth and fiscal policy impulse.
- On current policies, a fiscal contraction of about half a percent is expected in 2020 absent offsets.
- India:
- Continue gradual capital account liberalization; prioritize FDI, then gradual opening to portfolio flows.
- Full convertibility of the rupee should be considered only after achieving debt sustainability targets (reference to medium-term fiscal strategy limiting debt at 40 percent once sustainability is achieved).
- Korea:
- Projected growth 2.6% in 2019, supported by private consumption pickup and supplementary budget stimulus; additional stimulus recommended to focus on social safety net, labor market functioning, and investment promotion.
- Sri Lanka:
- Ahead of elections, authorities urged to pursue sustained revenue-based fiscal consolidation, vigilant monetary policy, and reserve-building to maintain market confidence given high public debt.
- Structural reform priorities: trade opening, SOE reforms, competitiveness; labor reforms to address aging and low female labor participation.
- Bangladesh:
- Banking sector concerns: rising non-performing loans in state-owned and private banks despite strong economic performance.
- IMF to publish a Financial Sector Stability Review with concrete steps; financial inclusion and private sector development (including microfinance legacy) highlighted.
Fiscal/monetary policy guidance and priorities
- Overarching guidance for Asia:
- Aim to stabilize growth while ensuring sustainability and increasing resilience.
- Be agile, vigilant, and prudent; preserve policy space to respond if downside risks materialize.
- Financial policies should address vulnerabilities from high leverage and build buffers.
- Structural reforms to sustain medium-term growth: labor and product market reforms, market opening to boost employment, firm dynamism, and innovation; stress social spending to address inequality and inclusion gaps.
- Crisis response sequencing:
- If downside risks materialize, fiscal policy should be first line of defense in many cases, with monetary policy responding based on country-specific circumstances and available space.
- Infrastructure and Belt and Road Initiative (BRI):
- BRI can boost infrastructure, connectivity, trade, and growth if projects are implemented with open procurement, high governance standards, fiscal sustainability focus, and private sector participation.
- IMF engagement includes sharing best practices and capacity development via the China-IMF Capacity Development Center.
Q&A — notable quantitative and technical points
- Tariff assumptions and trade mechanics:
- Reference to a U.S. tariff rate of 10% on $200 billion packages and a previously assumed increase to 25% that was revised given the tariff truce.
- Trade diversion and frontloading noted as channels that altered observed trade flows in 2018; sharper trade flow declines observed in late 2018 and early 2019.
- Indonesia inflation:
- CPI inflation fell from 3.1 percent at end-2018 to 2.4 percent in March (main driver: food prices); core inflation excluding food/volatile items around 3 percent.
- Bank Indonesia raised rates by 175 basis points in 2018 and has since kept policy rate on hold; stance judged appropriate but authorities should monitor and stand ready to loosen if inflation continues to decline.
- Japan fiscal arithmetic:
- Consumption tax increase planned from 8 to 10 percent in October 2019; without offsetting measures, fiscal stance implies about a 0.5 percent contraction in 2020.
- New Zealand:
- Outlook weaker in 2019 due to fading reconstruction, net immigration, and property tailwinds; policy space exists for monetary easing and fiscal stimulus if needed.
- North Korea:
- North Korea is not an IMF member; IMF has received no communication from North Korean authorities regarding engagement; any engagement would depend on views of IMF shareholders.
Transcript of April 12, 2019 Asia and Pacific Department press briefing — IMF Communications Department.