Transcript

Press Briefing Transcript: Asia-Pacific Department, Annual Meetings 2025

October 16, 2025

Speakers:

Krishna Srinivasan, Director of the Asia and Pacific Department, IMF

Thomas Helbling, Deputy Director, Asia and Pacific Department, IMF

Moderator:

Randa Elnagar, Senior Communications Officer, IMF

MS. ELNAGAR:  Good morning, and welcome to our attendees here in the room and those joining us virtually and online.  This is the press briefing on the Regional Economic Outlook for the Asia and Pacific Department.  

I am Randa Elnagar of the IMF's Communications Department.  With me today are two speakers.  Next to me is Krishna Srinivasan, Director of the Asia and Pacific Department, and next to Krishna is Thomas Helbling, Deputy Director of the Asia and Pacific Department.  

To kick start our briefing today, Krishna is going to give some opening remarks.  Then we're going to take your questions.  Thank you.  Krishna.

MR. SRINIVASAN: Good morning to participants here in Washington, and a very good evening to participants who are online in Asia.  Welcome to our press briefing for Asia and the Pacific.  Allow me to make a few opening remarks.

Economic activity in the Asia-Pacific is holding up better than expected in April, despite the region bearing the brunt of U.S. tariffs and policy uncertainty remaining high.  We project the region to grow by 4.5 percent in 2025 and moderate to 4.1 percent in 2026.  Inflation is expected to remain muted in most countries.  

The region is once again set to contribute the lion's share of global growth - about 60 percent both this year and in 2026.  

What explains this resilience?  I would identify three key factors: strong exports, a tech boom, and accommodative macro policies, reinforced by favorable financial conditions.  Let me elaborate on each of these a bit.  

Exports were supported by firms front-loading shipments ahead of the tariff hikes and tariffs themselves, while still higher than the beginning of the year, are lower than what we expected back in April.  Export strength was also driven by a surge in intra-regional trade, while the AI-driven tech boom also lifted high-tech exports, especially from Korea and Japan.  

Buoyant activity has been supported by an easing of either monetary or fiscal policy, or in some cases, both across many countries in the region.  Booming equity markets, lower long-term borrowing costs, and a weak dollar have also helped.  

How have individual countries performed?  The Chinese economy has remained resilient despite the increased tariffs, with robust growth in the first half of 2025 driven by fiscal expansion and strong exports.  But growth is likely to moderate going forward from 4.8 percent this year to 4.2 percent next year, and uncertainty remains high.  Deflationary pressures persist in China.  

For Japan, we have revised this year's growth forecast to 1.1 percent owing to a strong uptick in domestic demand, but growth is projected to slow to 0.6 percent in 2026, closer to its potential.  Inflation is projected to moderate, converging to the BOJ's 2 percent target in 2027, helped by a decline in commodity prices.  

The Indian economy is projected to grow at a healthy pace of 6.6 percent this year, once again at the fastest clip among major emerging economies, with welcome Goods and Services Tax reforms help offset the adverse impact of the tariffs.  Growth is projected to moderate to 6.2 percent next year owing to higher tariffs.  

Korea's growth will increase from 0.9 percent this year to 1.8 percent next year.  Accommodative macroeconomic policies and easing domestic political uncertainty support the recovery.  The ASEAN economies will expand by 4.3 percent for two straight years, supported by strong export strength, and in some countries, by policy support.  

But resilience is not the whole story.  Asia has grown more slowly this decade than in the last.  Aging populations, weaker productivity, economic scars from the pandemic, and rising youth unemployment, alongside dissatisfaction at the lack of jobs and opportunities, are weighing on sentiment and economic prospects.   

And risks to the current outlook are to the downside.  As most recent developments indicate, the dust on tariffs has not yet settled.  They could still increase.  Similarly, risk premia and interest rates could rise again, especially if trade policy uncertainty or geopolitical tensions intensify, and a tightening of financial conditions could further increase debt-related vulnerabilities and stifle growth.

In the face of these risks, what should be the focus of policies?  Where inflation is expected to decrease below target, countries can lower interest rates.  They can also deploy temporary, well-targeted fiscal measures to support vulnerable people and viable firms in sectors hard hit by higher tariffs.  Upgrading medium-term fiscal frameworks will be essential to prepare for future shocks and manage large long-term spending pressures.  Countries also need to make growth more inclusive and resilient by rebalancing toward domestic demand, especially consumption, through stronger social safety nets, and where needed, balance sheet repair.  

Concerted efforts to pursue reforms to boost trade and investment will help fuel durable growth for years to come.  Our analysis in the forthcoming REO to be launched in Hong Kong next week shows that deeper regional integration could yield sizable gains.  Countries can cut non-tariff barriers, broaden and modernize trade agreements to cover services and digital trade and ease FDI restrictions.  

We also show in our REO that countries in Asia need to boost capital efficiency, making sure every dollar invested has a strong return.  And this can be done with deeper bond and equity markets, broader market-based finance, and stronger insolvency and debt worker frameworks.  So capital flows to the most productive firms.  And a much-needed cleanup or streamlining of regulations in countries across the region can help unleash the full potential of the private sector.  

Asia's story in 2025 is one of resilience.  The task ahead is renewal policies that anchor stability today while unlocking stronger, more durable growth tomorrow.  

Thank you.  With that, I look forward to your questions.  

MS. ELNAGAR: Thank you, Krishna.  Please raise your hand and identify yourself and the organization.  The lady, please.

QUESTIONER:  Hi, I have a question about the recent escalation, the renewed escalation of U.S.-China tensions.  How would that affect Asia's economies?  Notably, China's latest expansion of rare earth export controls which probably would have a huge impact on Asia's supply chain.  So, if you can elaborate on what that means for Asia's economy and potential risks.  Thank you.  

MR. SRINIVASAN:  Thank you.That's a very good question.  So, Leika, to begin with, as I mentioned, our baseline has growth in 2025 at 4.5 percent, slowing to 4.1 percent next year in 2026.  This is what we have in our Regional Economic Outlook, in the World Economic Outlook.  But in that, we also emphasize that there are significant downside risks to this outlook.  And we talked about trade uncertainty, we talked about rising financial costs, and debt-related vulnerabilities.  Now, the recent tensions, trade tensions with the U.S., are a stark reminder of how some of these risks could materialize.  

Now, you know, we don't have, in the REO, in the World Economic Outlook, we have a downside scenario, right, which is not exactly along the lines of what we see, great tensions with what's happening recently.  But what we show there is that if some of these downside risks, which we talked about, materialize, then growth next year could slow from 3.1 percent to 2.8 percent.  So that's in some sense again a downside scenario, not exactly what mimics what we've been seeing recently.  

So the point here we're making is that the outlook is, for now, resilient for Asia, but there are significant downside risks.  And what we've shown in the past is that when risks to the world materialize, Asia will lose a lot more.  This is a region which is highly integrated in global supply chains.  So when there are tensions between large economies like the U.S. and China, it will have a greater impact on Asia.  And that's what I'd like to leave you with.  

MS. ELNAGAR:  Thank you.  Please stay on global.  

QUESTIONER: Thank you. I just want to follow up on the trade question.  You mentioned that the downside risks remain, and right now, it's too resilient, but tariffs could still increase. So are you concerned that ongoing trade tensions could undermine Asia's position as a global economic powerhouse if things continue on that track?  Thanks.  

MR. SRINIVASAN:  Thank you.  Again, as I mentioned to the question which Leika raised, our baseline has Asia growing at 4.5 percent, slowing to 4.1 percent.  Asia will still contribute a lion's share of global growth, which is about 60 percent this year and next year.  But any shock to global trade has a significant bearing on Asia.  

I remember we spoke last time, and I showed that this is a region which is highly integrated in global supply chains.  This is a region which is highly dependent on external trade.  So anytime there are shocks to global trade, it's going to affect Asia that much more.  

And the point I would like to make is that there's always a silver lining, right?  And Asia has an opportunity to pivot more towards domestic demand-led growth. 

What we show in our Regional Economic Outlook is if you look at domestic demand in Asia Pacific, compared to pre-pandemic to where we are now is significantly slower.  The contribution is much lower.  So there's an opportunity for countries in Asia, and here I'm talking not just of China but many countries in the region, to pivot towards greater domestic demand.  So that's one.  

The second is, as I mentioned in our Regional Economic Outlook, we have a chapter which talks about greater scope and benefits from integration within the region.  And what we find is that this region, when it comes to final goods, it depends a lot on external demand, the EU, and the U.S. right.  Much less comes from within Asia.  So if you improve or if you intensify greater integration within the region, then GDP can increase by as much as 1.4 percent over the medium term for all of Asia.  And some countries, in particular the ASEAN which are much more open, linked to global supply chains, will benefit a lot more.  About almost 4 percent of GDP will increase.  

So yes, trade tensions will, if they intensify, they will affect both the global economy but Asia more so.  But there is, you know, ways to address this going forward, which will benefit both Asia and the rest of the world.  

MS. ELNAGAR:  Thank you, Krishna.  The gentleman here in the middle.  We’ll stay in the middle.  

QUESTIONER:  Hi, Krishna.  .  We continuously hearing from you that Asia needs to integrate, work within each other, and work more with each other if there are global tariffs being imposed from the developed and advanced economies.  I have a question related to that.  

As, you know, there's deeper regional integration happening, India has also launched reforms to insulate itself from all the other global tariff impact.  The Indian Prime Minister himself has very clearly called out we need to be atmanirbhar, which is self-reliant.  What is your prescription for India?  Should it continue on that path or should it have a two-track approach?  While we deepen building our own internal consumption demand and catering to it, should we also be open to do multilateral trade with other countries and not be averse to the export tariff or figure out other geographies and economies till the U.S. wakes up and says yes, I want to trade with you?  

MR. SRINIVASAN:  Thanks for the question, a very good question.  Many questions within one.  See, just to backtrack a little bit, India continues to be the fastest-growing major economy.  We have India growing at 6.6 percent this year, slowing to 6.2 percent next year, and that slowdown next year is because of the higher tariffs of 50 percent.  

If you look at India's fundamentals, pretty strong growth is good, inflation's coming down, fiscal deficit is well-managed.  So there are many things which are working in India's favor.  Of course, the tariffs are a big shock to the region.  But to your question, if India has to grow at the rate at which you're talking about in terms of being Viksit Bharat by 2047, India has to fire on all cylinders, strengthen domestic demand, strengthen integration within India.  So the GST reforms go in that direction, which will provide a fillip to, you know, consumption, they'll improve domestic demand.  

But also, we've talked about the fact that there is an opportunity here for India to integrate itself in global supply chains.  And for that, there are many things India needs to do.  One thing is trade liberalization, we've talked about this even in the past, before the tariffs hit India.  If you want to really scale up and compete with China and so on, you need to liberalize your trade, you need to make labor laws that much more flexible so that India can scale up.  That's a big problem.  It needs to do a lot in terms of improving the business environment.  There are lots of regulations which impede, you know, the ability of the private sector to unleash its full potential.  

So those are things which India needs to do.  So in my view, it's not one or the other.  It needs to fire on all cylinders if you want to get to 8 percent or more growth and meet the objective of Viksit Bharat.  

MS. ELNAGAR:  Thank you.  We'll stay on India.  So if you have a question on India.  Please, the gentleman.  

QUESTIONER:  Good morning, Krishna.   You mentioned that India's 6.6 percent growth this year and the reforms could offset the adverse impact of higher tariffs.  While acknowledging India's 50 percent tariff is the highest globally, the RBI Governor yesterday emphasized that India's growth remains largely domestic driven and that tariffs are not a major concern.  So in this context, how do you assess India's overall growth moving forward?  In addition to private sector investment, what are the steps India can take?  Thank you.  

MR. SRINIVASAN:  So again, in many ways the questions, the answer would be very similar to what I told Deepak just now.  Thanks for the question, Vishnu.  So in terms of the growth, 6.6 percent this year, we've had some headwinds and some tailwinds.  The headwinds, of course, were from tariffs, but on the tailwinds, you had, the first quarter came out at 7.8 percent, much better than most people expected.  So that's a tailwind.  And also, the GSE reforms provide some fill-up to consumption.  

So those are, you have offsetting forces there which get you to 6.6 percent, which is about what we had before by about 0.2 percentage points.  For next year, we have 6.2 percent, and that's predicated on tariffs staying at 50 percent.  The way we do our forecast is based on announced policies.  So if India reaches a trade agreement with the U.S. when tariffs are lower, there's an upside potential to growth next year.  

The more important point is, I think, tariffs do matter.  There are many sectors in India which are affected by these tariffs, whether it's garments, leather, gems and jewelry, and so on.  So, you know, it is going to be -- and these are sectors which are labor-intensive.  So to the extent that they hurt, they're going to affect employment opportunities in this region.  

Going beyond that, I think, as I said, you have to fire on all cylinders.  Both address external demand and domestic demand, try to integrate more into global supply chains.  India has signed free trade agreements with the U.K., it's pursuing agreements with the EU and Australia, and so on.  Those are all the right things to do because you also want to diversify your export markets so that, any shock in one particular country, you have other ways to diversify that.  

But beyond that, there are these structural reforms, deep structural reforms which are needed for India to grow at the rates at which they aspire to grow at 8 percent.  So those structural reforms are fundamental.  So macro policy framework is good for now, but these deeper reforms are needed to reach the aspirations. 

MS. ELNAGAR:  Thank you.  I know that we wanted to go online, if I may, because had a question on India.  ?

QUESTIONER:  I am.  Thank you, Randa, it's nice to see you.  Hi, Krishna.  While my colleagues have really covered most of it, I just want to get Krishna's two cents on the fact that a lot has been happening with the energy talks and looks like India may diversify now to the U.S. Does that bring us closer to a higher growth rate if possible and can we afford to go on or move away from cheaper discounted crude that we usually get from Russia?  

MR. SRINIVASAN:  I'm not going to talk about the ongoing trade negotiation.  That's something between India and the U.S.  The point I would like to make is that diversification of export markets is always good and so that you insulate yourself from the shocks.  So, the rest of the question, I think I've already answered.  

MS. ELNAGAR:  Thank you.  We'll go to the left of the room here, please, the gentleman.  

QUESTIONER:  Thank you very much.  My.  And my question is on Japan.  You have expected that the Japanese growth rate this year revised up by 0.04.  But next year Japanese growth rate might be slower than this year.  And why wouldn't Japan maintain the favorable momentum into 2026?  And under such sluggish conditions, could BOJ conduct gradually tightening monetary policy to neutral rate as you expected?  Thank you.  

MR. SRINIVASAN:  Thank you for that question.  So, as you may have seen in our forecast for Japan, you had a growth rate of 0.1 percent last year owing to significant disruptions both on the domestic side and external side.  For next year, we have growth at 1.1 percent, and that largely reflects the fact that it was a strong first half, a big improvement in domestic demand.  And going forward, we have growth slowing to 0.6 percent next year, which is the potential growth for Japan.  So in that sense, it's heading back to its potential growth.  

In terms of the BOJ, we've talked about the fact that the BOJ stance is data dependent, and depending on how inflation reaches target, they can tailor monetary policy accordingly.  

MS. ELNAGAR:  Thank you.  Krishna.  We'll go back here in the middle.  The lady in the front.  No, in green.  Thank you.  

QUESTIONER:  Thank you.  So my question is about China.  So we can see the IMF captured China's economic outlook unchanged.  So how do you see the China's fiscal policy?  And what has China done right and what should it keep doing?  And also, what role can China play in supporting global growth?  Thank you.  

MR. SRINIVASAN:  Thank you for the question.  I'll answer a bit and then maybe my colleague Thomas will chip in. 

So for China, we have growth at 4.8 percent this year and slowing to 4.2 percent next year.  There's been a strong uptick in exports in China.  They have also provided a lot of fiscal support to the economy.  So going forward, the question is for China, the important issues of rebalancing the economy from a model where they've relied a lot on external demand towards a model which relies more on consumption-led growth.  

And the policies we've talked about here, you know, is first and foremost getting the problem in the real estate sector fixed.  It's been a lingering concern, and ever since the real estate crisis began, consumer confidence has been plummeting.  So you want consumer confidence to revive.  And for that, it's important to make sure that the housing crisis is fixed in a durable way through comprehensive policies that will help boost consumption.  

In addition, we also talk about the fact that China needs to do a lot more on improving social safety nets.  Now, China has pursued some reforms in this area.  We still think it's incremental; they need to do a lot more, and greater emphasis on the services sector is very important.  So I think that's an area where if there's more done, you will see the pivot towards, more domestic demand-led growth will happen.  

 And finally, the question, it's not just about providing more fiscal support.  One may argue that, with debt levels being high, does China have the fiscal space?  Our view is that in the near term, they have the fiscal space to provide more support to the economy to boost consumption.  But more importantly, China has also been providing a lot of support for industrial policy.  Fiscal it's been estimated at about 4 percent every year.  So the composition of fiscal could shift from focus right now in industrial policy towards more rebalancing that would boost consumption.  And that's the policy package we are advocating would help both China and continue its contribution to the global growth.  China contributes one-third to global growth and, pivot towards greater consumption-led growth would continue to doing that.

Yeah, Thomas, if you want to add please. 

MR. HELBLING:  Maybe just to add to what Krishna said, China is a very large economy, so addressing the domestic issues will also help the world.  So as we have said in the past, addressing domestic imbalances, partly related to the real estate slump, will also help the rest of the world through demand.

And the second point is, keep continued trade integration with other countries and provide a market for other countries.  And so imports of China have been relatively flat.  That is partly the domestic demand slump.  So if the domestic economy picks up, that will also provide demand for other countries.  Thank you.

MS. ELNAGAR:  Thanks.  The lady in the middle with the grey jacket.

QUESTIONER:  Thank you very much for taking this question.  I'd like to take your attention to Sri Lanka.  

There's ongoing debate in Sri Lanka about balancing fiscal consolidation with the need to protect growth and livelihoods while resolving the current debt distress as we approach 2028 debt servicing after the moratorium in 2022.  So what's your advice here?

And also despite Asia-Pacific remaining the fastest growing region, World Economic Outlook shows uneven recovery between advanced economies and smaller emerging markets.  Do you see signs of similar vulnerabilities in other parts of the region?  And also the Sri Lankan economy, there was a distinct case.  So what has the IMF learned there and will implement in smaller economies and frontier markets like Sri Lanka?  Thank you.

MR. SRINIVASAN:  Thank you for those questions.  Thomas, you want to take those questions?

MR. HELBLING:  First on Sri Lanka and fiscal consolidation and balancing and growth, I think let's take a step back.  After, a deep recession during the crisis, Sri Lanka has now implemented a program, a homegrown reform program and now benefits from very strong growth, 5 percent last year.  We estimate 4.2 percent this year and the next year going towards potential of 3 percent.  So the key advice at this point is really continue with program implementation, reap the full benefits of the program, and then growth will come and continue, I think.

And for Sri Lanka what is important is to continue on the way to stabilization, make sure that the institutional and other factors for macroeconomic stability are given.  Fiscal consolidation plays a key role and also ensuring viability of state-owned enterprises to mitigate or lower contingent risks to the budget will be key for these benefits to continue.

MS. ELNAGAR:  Thank you.

MR. SRINIVASAN:  I think the point I would make is Sri Lanka has come a long way from where it was a few years ago.  And so the advice we would say is stay the course.  You've done the difficult part, continue with the reforms and you will see the benefits.  You're already seeing the benefits.  You'll continue to see more benefits.

MS. ELNAGAR:  Thank you.  We'll stay here.  I will take one online on Sri Lanka.

QUESTIONER:  Thank you, Mr. Srinivasan, for the presentation earlier.  I have two questions on Sri Lanka.  How does the IMF assess the role of past fiscal mismanagement and large-scale nonproductive infrastructure investments, often referred to as white elephant projects, in contributing to Sri Lanka's economic crisis?  And what safeguards are being recommended to prevent such policy failures in the future?

At the same time, Sri Lanka's electricity pricing regulator earlier this week there will be no price adjustment for the last quarter of 2025.  However, the IMF has repeatedly mentioned that it is instrumental to maintain cost recovery energy pricing.  With this move, what consequences will Sri Lanka face in terms of achieving debt sustainability?  Thank you.

MR. HELBLING:  On the first part of your question, looking at the legacy, there were many factors that contributed to the crisis.  I think, as I mentioned before, the key is to go forward and establish the institutional framework on the macroeconomic policy side, on the governance side.  So public investment management is a key part of sound fiscal frameworks, as mentioned before.  The government has also subscribed to government reform, which it supports under the program.  And further, there has been impressive progress, further progress along the benchmark laid out in the program are important.

On electricity pricing let me just say cost recovery is a continuous structural benchmark under the program.  As mentioned before, restoring or maintaining, keeping the fiscal house in order also on the state-owned enterprise side is really crucial to go forward.  It will be important to stay the course there.

On whether prices increases are needed or not, that depends on a number of factors.  It depends on climate, it depends on international energy prices, and so on and so forth.  So that is part of the ongoing program negotiations and we cannot comment on statements.  We just know under the program it's a critical benchmark.  And so far, the government has wholeheartedly supported the reform.  And as Krishna said, we would just reemphasize stay the course.

MS. ELNAGAR:  Thank you.  I will stay -- I remain online.  I have a question on Bangladesh.The IMF in its World Economic Outlook for October lowered Bangladesh's economic growth projections for the fiscal year 2526 to 4.9 percent from its earlier projection of 5.4 percent.  The IMF also projected the rate of inflation for FY26 to 8.7 percent from its June projection of 6.2 percent.  Can you please tell us reasons for downgraded net growth projections and upward revision for inflation?

And a second question, how is Bangladesh doing in the case of concluding the reforms under the IMF's 5.5 billion credit program?  Thank you.

MR. SRINIVASAN:  Thank you. Your question I think was on growth rate and on why we have lowered our growth forecast to 4.9 percent this year.  I think that there are three reasons.  One, of course, is the policy mix has been tighter.  The second, tariffs and uncertainty have played a big role.  There's also, in addition to the tariff-related uncertainty, there are two other uncertainties which are bearing on Bangladesh economic prospects.  One,the upcoming elections and certainly associated with that which will have a bearing on prospects.  And the second thing I would say is there is significant weakness in the financial sector, which will affect, you know, availability of credit and so on.  So that's also bearing on economic prospects.

In terms of inflation, we have inflation at 8.5 percent by end FY26 and that's primarily driven by supply side shocks earlier this year.

Now, in terms of the program, a team will go to Bangladesh sometime soon to undertake the next review of the program.  And what I would say is that Bangladesh needs to continue with the key reform areas on fiscal where revenue mobilization is a key part of the reform adjustment there and the second is on the financial sector.  These are key aspects which we're looking at as part of the review, which will be forthcoming.

MS. ELNAGAR:  Thank you very much.  The lady in the fourth row here.

QUESTIONER:  Thank you so much for having me.   So my question is in the context of the countries that just have new government recently.  Thailand is one of them that just rolled out lots of economic-related measures and policy.  How may this cause challenges and what's your suggestion?

MR. SRINIVASAN:  A great question.  Anytime you have political uncertainty, it's related one way or the other to the certainty with the policy framework.  So to the extent that, you know, that uncertainty dissipates, you will see greater momentum in the economy.  And I think that's the case of Thailand.  One hopes that with greater certainty, political certainty, economic prospects will pick up.

MS. ELNAGAR:  Thank you.  The lady in blue in the back.

QUESTIONER:  Hello, thank you for taking my question. I would like to ask you about the South Korea government debt level.  Because with Korea's government debt ratio to its GDP is around 50 percent.  And do you think it's a level of sound thing or it could be a risk factor for our country? MR. HELBLING:  So if you look at Korea debt level, public debt level of at around 50 percent, if you look across the advanced economies, that's a low level of debt and so Korea has fiscal space in the near term.  The Korea team was just concluding the Article IV in September; had a press release.

I think there are two points to make on fiscal.  One is,in the short term there's fiscal space, use it prudently.  The key point for Korea, though, is to connect the short term to the longer term.  In the longer term, Korea will face fiscal pressures from the demographics, rapidly aging population.  So, it's important to prepare for rising pension and healthcare costs.  The point to make there is, to connect long term and the short term, is, A) to proceed with pension, other reforms to manage the long-term spending pressures and, B) to have medium-term fiscal frameworks.  I think with these medium-term challenges to have a fiscal framework that sets clear anchors for deficit, for debt, helps to manage that and have fiscal policy conduct that keeps the economy -- or helps to keep the economy stable along the growth path and also prepare for future challenges.  That has been a longstanding recommendation for many countries, and I think Korea would also benefit from that.

MS. ELNAGAR:  I'll stay on Korea and then go back to the room. The IMF projects Korea's growth to rebound in 2026, but that still falls below the country's estimated potential growth rate.  Do you view Korea's slowdown as something that can be resolved through cyclical recovery factors or does the IMF believe it reflects longer term need for a structural shift in the growth model?

MR. HELBLING:  So, on the growth rebound there are several aspects.  The first point to mention there were special factors at work for low growth earlier this year and late last year was domestic political uncertainty and also increased trade policy and uncertainty and the tariff shocks.  So, in that sense, it's not surprising that growth was low.

We see in the near term we see a pickup in growth for two reasons.  One, lower domestic political uncertainty, which will help consumption, plus more macroeconomic policy support.  The government adapted two supplementary budgets - that with a fiscal impulse in the order of just below 1 percent of GDP around 0.8 percentage point will help to boost growth in the second part of the year and then into next year.  So, 1.8 percent is close to potential.  The reason why we would not expect to return to potential growth around 2 - 2.1 percent currently is that the tariff effects will start building.  Front loading and special factors have partly sort of mitigated the impact of tariffs so far, but they will be building to some extent.

So then to potential growth.  So, I mentioned it's -- our team has estimated it to be slightly above 2 percent.  STo have a material increase in potential growth and that is possible with structural reforms, but that's what's needed.  Macro policies cannot help.  Fiscal policy can play a supplementary role in the sense you can redirect expenditure, you can support reforms to raise productivity, labor market reforms, and so on and so forth that have been discussed in the most recent Article IV, which is not published yet, but it has been discussed extensively also in the last Article IV.

But the key point is fiscal stimulus is not an instrument to raise potential growth.  It requires structural reforms.  The government, [with] its new economic growth strategy, has recognized this and will support productivity, and it will also support human capital, education, and diversification of the economy into services sector, all factors that should help raise the potential in the future.

MS. ELNAGAR:  Thank you.  The lady in the middle.

QUESTIONER:  I have two questions on China.  First one is about China's deflation situation.  What do you think will be the consequence for China and the world if China's deflation extends into a fourth-year, next year, because the GDP deflator has already been negative since 2023?  And the second question is I wonder if you can talk about your outlook for China's export growth in light of the latest U.S.-China tensions escalation and the rare earth curbs.  Thank you.

MR. SRINIVASAN: In the baseline we don't have deflation, but our policy recommendations are aimed at making sure that China can reflate its economy.  So, this is the emphasis on providing support to the economy both in terms of addressing the crisis in the real estate sector and to boost consumption.  You do that, you're going to get domestic demand up and that should help reflate the economy.  So that's a recommendation we are talking about here.

And your second question on exports, China continues to do well in terms of export growth.  The point which Thomas also made is that you want to have greater integration within the region.  And so when China opens up or China bolsters domestic demand, you will see more imports into China from rest of the region.  So that's the channel which we want to talk about in terms of integration within the region.  But China's overall export performance is doing well.  But the point I made before in terms of pivoting away from that model to a more consumption-led growth model is important for China, both for itself and for the world.  Otherwise, we see China slowing at 3.5 percent over the medium term.  So, they need to really pivot from that model.

MS. ELNAGAR:  Thank you.

QUESTIONER: Given the size of population of India, I hope we've earned the second question, but this one is on Asia.  On the geopolitics front, more so and beyond economics, how can Asia and the countries within Asia collect together to form a more powerful and influential geopolitical bloc?  Stop the infighting between maybe India-China, Bangladesh-Sri Lanka, get their act together and become a strong force to compete with the other blocs which have been dominating the global trade as well as the influence for the longest years.

MR. SRINIVASAN:  There are many things can be done in the region, but I'd like to focus on the part which we have analyzed in this Regional Economic Outlook, which is greater integration within Asia.  If you look at Asia as a whole, the number I gave, when you look at trade in intermediate goods, that's pretty robust.  When it comes to final demand, Asia still relies a lot on external demand from Europe, from the U.S., and so on.  So, if you were to integrate more within the region, there's significant scope there. And what we show is that in terms of enforceable provisions and trade agreements, they're much weaker in Asia.  So, lots of non-tariff barriers prevent this integration. And if you integrated more, you would grow that much.  So, for Asia overall is 1.4 percent.

And to your point about India and the population, you said in the second question, South Asia is not very well integrated.  So, the benefits accrue a lot, of course, with the ASEAN, but South Asia also benefits.  So, I would say that you have greater linkages within Asia through trade.  I think that itself provides you with a stronger force to reckon with.

And, of course, financial integration is something which we also talked in this thing where, you know, lots of things happening, how the ASEAN countries are using QR codes to have financial integration within ASEAN and they've expanded to the other countries in Asia.  So, if you have both trade and financial integration, you have a very strong group to reckon with.

MS. ELNAGAR:  Thank you.  We go to the right of the room.  We didn't take any questions here.  Please go ahead.

QUESTIONER:  Thanks for taking my question.  My question is about China.  As you previously mentioned, the importance of real estate sector to Chinese economy.  I'd like to ask since the start of housing crisis, China has taken many measures to deal with it.  So how do you think of the impact of these measures?  And also, in addition to housing sector, what other sectors can potentially be the new driving force of Chinese economy?  Thank you.

MR. SRINIVASAN:  A very good question.  So, your latter part of the question, what other sectors, I think the area where China can do a lot more is services.  I think that is not been exploited enough.  So, services sector emphasis would great, would generate lots of dividends for China.

On the real estate sector, this has been a crisis which has been lingering for almost five years now or maybe more.  And you're absolutely right, China, the policymakers have adopted a number of reforms, number of policies support, but what we think is these are, in some sense, a bit piecemeal.  What you need is more comprehensive reform package.  And I think what underpins is you need to revive consumer confidence.  Housing was the biggest asset for Chinese nationals and that's been, in some sense, decimated.  So, if you want to improve confidence and boost consumption, you have to fix the problem there.

And like pre-sold housing, that needs to be finished; many of those still are not done.  So, we had estimated about 5 percent of GDP as a cost to rehabilitate the whole real estate sector.  And we had said that that could be done over three years.  But you could fast forward that and fix the problem once and for all -- resolve the developers, make sure that the unviable developers exit so that you restore the real estate sector to our most sustainable footing.  And we've been talking about this for some time, but all the measures that have been taken so far are in the right direction, but not comprehensive and a bit piecemeal.

MR. HELBLING:  I think one point we have made is the real estate sector was too large. I think relatively fundamental,it is in part a transition to a new equilibrium.  And what Krishna mentioned is in the primary area of primary sales or newly built housing, resolving the finished goods.  And we have made two points.  On the one hand, I think it's to make sure that non-viable developers exit, that unfinished housing is being resolved and that will require some government support either for compensation if this cannot be resolved through the orderly bankruptcy process or to ensure that funding for the finalization of unfinished housing is there.  Without that, we don't think confidence will come back, and just lifting restrictions on the demand side will not do the trick alone.

MS. ELNAGAR:  Thank you very much.  With that we come to the end of our press briefing.  Thanks to our speakers Krishna and Thomas and thank you also to those attending in person and those following us online.  The opening remarks and the blog will be available on IMF.org.  We also look forward to seeing those of you in the region in the press conference for the release of the Asia and Pacific Regional Economic Outlook that will take place in Hong Kong on October 24th at 10 a.m. Hong Kong time.  More details to follow.

We would like to remind you of the other regional press briefings that are going to be taking place in this room.  So have a wonderful day.  Thank you.