## Keeping Asia at the Forefront Amid Growing Risks

_IMF News, October 11, 2018_

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**Canonical URL:** [Keeping Asia at the Forefront Amid Growing Risks](https://www.imf.org/en/news/articles/2018/10/10/na091118-keeping-asia-at-the-forefront-amid-growing-risks)

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## Bibliographic details
- Published: October 11, 2018

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### Regional growth outlook and overview
- Asia continues to drive the global economy, with growth forecast at 5.6 percent this year and 5.4 percent in 2019.
- The Regional Economic Outlook: Asia and Pacific was launched at a press conference in Bali, Indonesia as part of the IMF-World Bank Annual Meetings.
- Longer-term challenges identified: slowing productivity, population aging, and the impact of the digital revolution on the future of work.

### Projected growth by economy and subregion
- China: projected growth remains at 6.6 percent for 2018 and is expected to moderate to 6.2 percent in 2019; medium-term risks rise with a possibly slower pace of deleveraging if stimulus offsets trade measures.
- Japan: 2018 growth marked down from 1.2 to 1.1 percent, reflecting mixed quarterly outturns.
- India: projected to grow at 7.3 percent in FY2018/19 and 7.4 percent in FY2019/20; revisions down by 0.1 and 0.4 of a percentage point, respectively, on account of higher oil prices and further monetary policy tightening.
- ASEAN-4 (Indonesia, Malaysia, the Philippines, Thailand): growth lost momentum in the first half of 2018—except in Thailand—and has been revised down for 2019.
- Rest of the region (including small states and Pacific island economies): growth is expected to pick up, reaching 4.1 percent for 2019.

### Downside risks and quantified scenarios
- Trade tensions:
  - Continued trade tensions could undermine business confidence, hurt financial markets, disrupt supply chains, and discourage investment and trade.
  - If all proposed tariffs are implemented, Asian GDP could fall by 0.9 percent over the next couple of years (IMF research).
  - Greater protectionism could make tradable consumer goods—such as electronics—less affordable.
- Tighter global financial conditions:
  - Driven by higher U.S. interest rates, sudden deterioration of risk appetite, rising trade tensions, and political and policy uncertainty.
  - Analysis suggests such tighter financial conditions could lower Asia’s output by as much as three-quarters of a percentage point.
  - Financial market volatility in some emerging market economies could worsen, with negative spillovers through reduced capital flows and higher funding costs.
- Domestic vulnerabilities:
  - High household and corporate debt in Korea, Singapore, and many other economies.
  - Inflated real estate markets in Australia and Hong Kong SAR.
  - Risk of slowing reform implementation in India.
- China-specific risk:
  - Focus on addressing significant and longstanding financial vulnerabilities, but a shift toward stabilizing growth may mean slower progress on deleveraging and heightened medium-term risks for China and the entire region.

### Policy recommendations to strengthen resilience and sustain growth
- Exchange rate and monetary policy:
  - Allow exchange rates to move flexibly and act as a shock absorber.
  - Use foreign exchange intervention only to deal with disorderly market conditions.
  - Support independent monetary policy decision-making to address inflation and domestic objectives.
- Macroprudential measures:
  - Use targeted macroprudential policies to protect financial stability.
- Monetary stance guidance:
  - With low inflation and negative output gaps in most advanced economies in the region, monetary policy should generally remain accommodative.
  - Where inflation is on the rise, or where capital flows remain volatile and balance sheets show significant currency mismatches, raising interest rates would be appropriate.
- Trade and investment liberalization:
  - Regional trade and investment liberalization (removing regulatory restrictions), particularly in services, can bolster prospects and offset global trade tensions.
  - Analysis shows that liberalization could boost Asian GDP by up to 15 percent over the long run.
- Firm dynamism and productivity:
  - Declining firm dynamism—the decline in young firms and the rise of zombie firms—has contributed to declining productivity growth.
  - Measures to boost firm entry and exit can help support economic growth.

### Digitalization, labor markets, and policy adjustments
- Digital innovations accounted for nearly one-third of Asia’s per capita growth over the past two decades.
- To harness the digital dividend, policymakers need to:
  - Upgrade education.
  - Improve infrastructure.
  - Update the regulatory environment.
- Address digital disruptions:
  - Manage displaced workers from automation.
  - Manage financial stability risks from fintech.

### Outlook
- These challenges are surmountable with continued sound policymaking.
- With appropriate policies, Asia should have good prospects for staying at the forefront of global growth over the coming decade and beyond.

*Source: Keeping Asia at the Forefront Amid Growing Risks (IMF, October 11, 2018).*

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## References

- [https://www.imf.org/en/News/Seminars/Campaigns/2018/VTI](https://www.imf.org/en/News/Seminars/Campaigns/2018/VTI)
- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [latest regional report](http://www.imf.org/en/Publications/REO/APAC/Issues/2018/10/05/areo1012)
- [Regional Economic Outlook: Asia and Pacific](https://www.imf.org/en/Publications/REO/APAC/Issues/2018/10/05/areo1012)
- [Annual Meetings](https://meetings.imf.org/en/2018/Annual/Schedule)
- [World economic outlook](https://www.imf.org/en/Publications/WEO/Issues/2018/09/24/world-economic-outlook-october-2018)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/10/10/na091118-keeping-asia-at-the-forefront-amid-growing-risks_