Transcript of October 2019 Asia and Pacific Department Press Briefing
IMF News, October 18, 2019
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- Published: October 18, 2019
Regional economic outlook and headline findings
- Asia Pacific growth is expected to be the slowest since the global financial crisis in the context of prolonged global uncertainty.
- Asia still accounts for more than 70 percent of the global growth in 2019.
- Regional growth projection: 5.0 percent in 2019 and 5.1 percent in 2020.
- Inflation across Asia is projected to remain subdued reflecting softening demand.
- Main policy priority: address the causes of policy uncertainty and restore the rules of the multilateral trade system.
- Near-term policy guidance: support growth where necessary while safeguarding financial and fiscal stability.
Country and subregion projections and developments
- China
- Growth expectations: 6.1 percent in 2019 and 5.8 percent in 2020 (reflecting transition and trade tensions).
- Q3 growth: 6.0 percent in the third quarter, down from 6.2 percent in the second quarter.
- Medium-term projection: growth to slow gradually to about 5.5 percent.
- China accounts for nearly 40 percent of global growth in 2019.
- Japan
- Growth projection: 0.9 percent in 2019 and 0.5 percent in 2020.
- October 1 consumption tax increase noted as temporary fiscal support to cushion private consumption decline.
- Climate and mitigation targets: mid-term goal of reducing greenhouse gas emissions by 26 percent by 2030 relative to the 2013 level; long-term goal of reducing them by 80 percent by 2050.
- Carbon pricing: Tax for Climate Change Mitigation (TCCM) gradually increased to as much as 289 yen per ton of CO2 emissions in 2016.
- India
- Growth expectation: 6.1 percent in fiscal year 2019, picking up to 7.0 percent in 2020.
- Monetary policy stimulus and the announced corporate income tax cut expected to help revive investment.
- Financial sector concerns: non-performing loans and non-bank financial institutions require attention; state-level fiscal health is a concern.
- Korea
- Revised growth: 2.0 percent in 2019 and 2.2 percent in 2020 (also referenced as 2 percent next year in parts of the discussion).
- Inflation projected at 1 percent (below the 2 percent target range).
- Fiscal support: supplementary/expansionary budget welcomed; about 1.2 percent of GDP of additional fiscal measures for next year (if approved), focused on vulnerable households, SMEs, and job training.
- Longer-term: aging population implies need for efficient spending and revenue increases to avoid debt increases.
- Alternative longer-term projection mentioned: 2.9 percent in 2024 (context: outlook reflecting possible orderly resolution of U.S.-China trade conflict).
- Hong Kong SAR
- Declining growth expected to continue in the near term due to U.S.-China trade tensions and domestic socio-political situation affecting exports.
- ASEAN
- Growth projected around 4.6 percent in 2019 and 4.8 percent in 2020; first-half 2019 softened due to weak exports.
- Pacific Island countries
- Growth generally firm; region revised upward mostly due to a gross rebound in PNG after last year's earthquake.
- Bangladesh
- IMF projection referenced by questioner: 7.8 percent GDP growth this year (questioner’s figure).
- Strengths: sustained outward-oriented growth driven by ready-made garments.
- Risks: severe liquidity and financial sector issues; high rate of non-performing loans; need to address structural weaknesses and create space for better lending and diversification.
- Thailand
- Growth weakened (around 2.6 percent in the first half of the year); high trade openness (imports and exports close to 70 percent) and manufacturing exposure linked to the slowdown.
- Policy recommendation: expansionary policy mix; frontloading public investment; accommodative monetary policy combined with macroprudential measures; structural reforms (pensions, human capital, regional development).
- Bhutan
- Growth projections discussed: 5.5 percent in 2019 and 2020; referenced projection of 7.2 percent (noted as one of the fastest growing).
- Growth closely tied to hydropower exports to India and implementation of projects financed by India.
- Debt: debt stands at 100 percent of GDP but assessed in context of contractual hydropower investments expected to yield export revenues.
- IMF team to visit in December to update numbers.
- Australia
- Revised forecasts: 1.7 percent growth this year and 2.3 percent growth next year.
- Policy response: series of Reserve Bank policy rate cuts; current-year budget personal income tax cuts providing fiscal support.
- Recommendation: if further downside shocks occur, fiscal policy should provide additional spending-side support; structural reforms (tax, female labor participation, infrastructure) are important.
Downside risks and spillovers
- Trade tensions: possible further intensification of trade tensions between the U.S. and China represents a significant downside risk despite recent announcements.
- Faster-than-expected slowdown in China: would cause significant trade and financial spillovers across the region due to close trade links and integration in global value chains.
- Global financial conditions: a shift in market sentiment, tightening of global financial conditions, or escalation of trade tensions could reverse benign capital flows and create difficult policy trade-offs for Asian policymakers.
- Overall risk stance: risks to the projections are skewed downward.
Policy recommendations and guidance
- General policy framework
- Near-term policies should support growth where warranted but must also mitigate long-term vulnerabilities.
- Monetary policy: generally accommodative depending on local circumstances; avoid overburdening monetary policy given “low for too long” rates in advanced economies.
- Fiscal policy: support domestic demand where there is fiscal space; country-specific—“one size does not fit all.”
- Financial sector policies: strengthen oversight where low interest rates and other factors create financial stability risks.
- Macroprudential and microregulatory tools: consider these to supplement monetary policy and limit negative side effects of prolonged low rates.
- Structural reforms: push ahead to strengthen resilience and lay the foundation for sustainable, inclusive growth.
- Country-specific fiscal guidance examples
- India: limited fiscal space; support for corporate income tax cut judged positive for investment but need to continue fiscal consolidation for long-term stability.
- Korea and Thailand: some room for temporary fiscal stimulus to offset short-term headwinds; ensure medium-term fiscal sustainability (efficiency, targeted spending, revenue mobilization in light of aging populations).
- Japan: fiscal policy could be first line of defense in a downturn; October 1 consumption tax increase seen as a step toward creating fiscal space to finance growing social security and healthcare costs; recommendation for further gradual consumption tax increases over time to address underlying structural demographic issues.
- Australia: balance between preserving fiscal buffers and providing support; additional fiscal support should be available if further shocks occur, with emphasis on spending-side measures.
Financial sector and structural reform considerations
- Financial stability
- High non-performing loans in some countries (e.g., Bangladesh) endanger financial stability and constrain lending needed for investment and diversification.
- Non-bank financial institutions in India remain a concern; need for regulatory parity and better coordination among financial regulators.
- Structural reform challenges
- Structural reforms often entail short-term costs that may be politically difficult; pursue reforms in good times and early in electoral cycles to minimize political costs and concentrate benefits over time.
- Structural measures cited include pension reform, human capital investment, tax reforms to stimulate business investment, measures to increase female labor force participation, and infrastructure investment.
Climate change and environmental policy
- Asia’s vulnerability
- Asia is highly vulnerable to climate change impacts (including populous low-lying areas and frequent disasters), and environmental degradation affects quality of life.
- Climate change presents both risks and an opportunity to develop new technologies and leapfrog to cleaner growth models; addressing emissions and environmental standards is also essential for maintaining export competitiveness.
- Policy examples and lessons from Japan
- Japan’s mitigation targets: reduce greenhouse gas emissions by 26 percent by 2030 relative to 2013; reduce emissions by 80 percent by 2050.
- Carbon pricing in Japan: Tax for Climate Change Mitigation (TCCM) on fossil fuels, increased to as much as 289 yen per ton of CO2 emissions in 2016; revenues used for renewable energy expansion and energy efficiency.
- Subnational measures: cap-and-trade schemes in Tokyo and Saitama; forest environment transfer tax introduced in April (year of transcript) to improve forest management and contribute to CO2 reduction.
- Recommendation: other Asian countries can learn from Japan’s experience; green financing, green infrastructure investment, carbon pricing, and subsidy reform cited as policy tools.
Transcript of October 2019 Asia and Pacific Department Press Briefing — IMF Communications Department