## Transcript of the Press Conference on Asia Pacific

_IMF News, October 14, 2017_

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## Bibliographic details
- Published: October 14, 2017

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### Key messages and regional outlook
- Global recovery is "quite broad based" and Asia "continues to [be] the main growth engine of the world."
- Region’s economic output projections:
  - 5.6 percent in 2017
  - 5.5 percent in 2018
  - Revision: 0.1 percent higher than expected in the April report
- Asia's contribution to global growth:
  - "about 63 percent of the whole global economy"
  - China: "34 percent"
  - India: "about 13 percent"
  - "India and China alone account for close to 50 percent of the global economic growth"
- Drivers of the current upswing:
  - Export growth (including rising intraregional trade)
  - Investment
  - Rising domestic demand and consumption
- Short-term window of opportunity:
  - Favorable tailwinds provide scope to implement structural reforms to address medium-term challenges.

### Country-specific assessments and projections
- China
  - Growth projection revised up to 6.8 percent in 2017.
  - Factors: pickup in producer prices, boosted corporate profit, stronger first-half momentum.
  - Medium-term growth projection increased assuming a sufficiently expansionary macro policy mix to meet the target of doubling 2010 GDP by 2020.
  - Risks: further large increase in debt due to expansionary policies; corporate debt concentrated in the state-owned enterprise sector.
  - Fiscal context: IMF measure of fiscal deficit (including local governments and other items) "about 12 percent of GDP, last in 2016 and '17."
  - SOE footprint: assets rose from "around 120 percent of GDP" pre-global financial crisis to "around 200 percent of GDP" currently; SOE profits weaker than private sector and receive substantial state support.
- Japan
  - Growth forecast: 1.5 percent in 2017, "well above their potential growth rate."
  - Japan sustained above-potential growth for six consecutive quarters through the first half of 2017.
  - Inflation and labor:
    - Headline inflation reached .7 percent in August; core inflation .2 percent.
    - Expected inflation: .4 percent in 2017 in IMF projections.
    - Medium-term projection: inflation to edge up to "something like 1-1.5 percent" over the medium term.
    - Challenge: re-anchor inflation expectations toward 2 percent; labor market duality and wage dynamics need structural reform.
  - Policy: continued accommodative Bank of Japan stance; coordinated fiscal, monetary and structural policies; medium-term fiscal consolidation required without undermining growth.
- India
  - Growth in fiscal year 2017 revised downward to 6.7 percent.
  - Reasons for slowdown: structural weakness in corporate and banking sectors; transitory shocks from the November currency exchange initiative and the July Goods and Service Tax reform rollout.
  - Outlook: expected to return gradually to medium-term growth path; recent high-frequency data suggest rebound already underway.
  - Structural priorities:
    - Resolve nonperforming loans; rebuild capital buffers in public-sector banks; enhance debt recovery mechanisms.
    - Fiscal consolidation via revenue measures and subsidy reductions.
    - Address infrastructure gaps, labor and product market efficiency, and agricultural reforms.
    - Labor market: reduce around 250 labor laws across central and state levels; close gender employment gap; invest in gender-specific training and infrastructure to boost female labor participation.
- Korea
  - Growth revised up to 3 percent, supported by pickup in business investment despite geopolitical tensions.
- Australia
  - 2017 growth revised downward, largely due to weather-related temporary disruptions.
- New Zealand
  - 2017 growth revised upward, driven by restocking and supportive fiscal policy.
- ASEAN
  - Growth expected to accelerate to five percent in 2017.
  - High intra-ASEAN trade, export strength and investment are key contributors.
- Small states and Pacific Island countries
  - After 2016 deceleration, activity expected to rebound in 2017 with recovery from natural disasters and global expansion.
- Mongolia
  - IMF Extended Fund Facility started in April; early program outcomes positive (growth up, balance of payments stabilized, fiscal improvements).
  - Program: three-year EFF; authorities urged to maintain momentum and continue implementation despite government transitions.
- Indonesia
  - IMF forecast: growth to pick up to 5.3 percent next year from 5.2 percent this year.
  - Inflation manageable within target band.
  - Policy priorities:
    - Fiscal reform to boost tax revenue (tax revenue as a share of GDP "around 10 percent").
    - Structural reforms: liberalize FDI regime, streamline regulations, improve youth employment (youth unemployment estimates range "between 20 to 30 percent"), boost formal employment and education.
- Bangladesh
  - Reported about 500,000 refugees (Rohingya) have entered Bangladesh; "too early to conduct a proper assessment of the economic impact"; IMF in close consultation with authorities and stands ready to assist if needed.

### Risks and vulnerabilities
- Downside risks to the Asian upswing include:
  - Tightening of global financial conditions and potential sudden capital outflows.
  - Escalation of geopolitical tensions (notably on the Korean Peninsula).
  - Potential peak and slowdown in the tech cycle that has supported exports (e.g., mobile demand).
  - Transitory nature of global trade expansion drivers (commodity price increases, inventory cycles).
- Rising leverage and balance-sheet vulnerabilities:
  - Increase in private sector debt (corporate and household) across many economies.
  - Household debt rising in several advanced Asian economies from low levels.
  - Bank balance sheets with limited buffers in some cases; need for stronger capital positions.
- Medium-term secular headwinds:
  - Population aging (risk Asia becomes "old before becoming rich" in some cases).
  - Productivity slowdown since the global financial crisis.
  - Rising income inequality, notably in large Asian emerging economies.

### Monetary, fiscal, and financial policy guidance
- Monetary policy
  - Subdued inflation in Asia provides scope for accommodative monetary policy in most countries, but countries differ:
    - Where inflation has been below target long-term (e.g., Korea, Thailand): avoid de-anchoring inflation expectations.
    - Japan: re-anchor inflation expectations toward 2 percent.
    - In economies with low inflation but very high credit growth (e.g., China): low interest rates can exacerbate financial stability risks; monetary policy should consider financial stability.
- Financial sector policy
  - Strengthen macroprudential measures and tighten financial sector policies where credit growth is rapid.
  - Maintain exchange rate flexibility as the main shock absorber in the event of capital outflows.
- Fiscal policy
  - Countries with fiscal space should support structural reforms (e.g., labor market reforms).
  - Countries with limited fiscal space should use the favorable conjuncture to rebuild fiscal buffers.
  - In China specifically: focus on composition of fiscal policy to rebalance from investment toward consumption and social spending rather than immediate stimulus; medium-term reduction of fiscal deficit needed.
- Structural reform emphasis (country-specific)
  - Financial market and banking sector reforms to rein in credit expansion.
  - Labor market reforms, human capital investment and measures to address automation and labor-force entry.
  - Fiscal reforms to mobilize domestic revenue and build fiscal buffers.
  - SOE reform (China): accelerate and deepen reforms to reduce excessive state footprint and address corporate debt concentration.

### Q&A highlights (selected)
- Renminbi internationalization
  - RMB inclusion in the SDR was a "big step"; renminbi internationalization expected to continue over the medium term, but not in a straight line—depends on continued rebalancing (shift toward consumption, services, and less reliance on debt).
- Japan inflation timing and drivers
  - Modest uptick in inflation; structural labor reforms (reducing duality, stronger nominal wage focus) needed for stronger wage pressures.
  - Bank of Japan accommodative stance supported; combined fiscal/monetary/structural approach recommended.
- India structural reforms
  - Priorities: resolve banking sector nonperforming loans, rebuild public bank capital, continue fiscal consolidation, address infrastructure and labor/product market inefficiencies, close gender employment gap.
- China macro policy stance
  - Current growth strong, no need for expansionary stimulus; focus on fiscal composition, social spending, and rebalancing.
  - SOE reform should go deeper and faster to support rebalancing while maintaining growth.
- Mongolia program message
  - Good start under the EFF but reforms must continue; improvements may be partly driven by external factors, so sustained program implementation is critical.
- Vulnerability to normalization
  - Countries with large private-sector debt and weak balance sheets are most at risk from normalizing global rates; Asia is more resilient than in past crises but vulnerabilities remain.
- Most critical medium-term challenges
  - No single priority; varies by country:
    - Advanced economies: population aging and labor-market participation issues (including female participation).
    - Middle-income/frontier economies: infrastructure needs, credit expansion control, and revenue mobilization.
- China’s role in the upswing
  - China's growth and regional economic integration remain important for Asia; deeper market opening and regional investment (e.g., Belt and Road initiatives) can be positive for regional growth.

*Transcript of the Press Conference on Asia Pacific, October 13, 2017 — IMF Communications Department*

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## References

- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Bangladesh and the IMF](http://www.imf.org/external/country/BGD/index.htm)
- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [Indonesia and the IMF](http://www.imf.org/external/country/IDN/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Mongolia and the IMF](http://www.imf.org/external/country/MNG/index.htm)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2017/10/14/tr101317-transcript-of-the-press-conference-on-asia-pacific_