Transcript of Press Briefing: Asia and Pacific Department Regional Economic Outlook October 24
IMF News, October 24, 2024
Source details
- Canonical URL
- Transcript of Press Briefing: Asia and Pacific Department Regional Economic Outlook October 24
Other formats
Bibliographic details
- Published: October 24, 2024
Regional growth outlook
- Regional forecasts upgraded to 4.6 percent in 2024 and to 4.4 percent in 2025.
- Asia generates 60 percent of global growth versus about 40 percent share in global GDP.
- Advanced Asia: domestic demand expected to strengthen as past monetary tightening fades.
- Emerging markets outside China and India: expected robust and broad based growth.
Inflation and monetary policy
- Emerging Asia: disinflation process is essentially complete.
- Exceptions in advanced Asia: Australia and New Zealand where wage pressures keep services inflation elevated; these pressures are expected to fade "within the next 12 months or so."
- Core inflation in China fell to 0.1 percent year-on-year in September.
- Many Asian central banks now have room to cut interest rates earlier in the year as the U.S. Federal Reserve has started its own easing cycle.
- Bank of Japan: welcome for policy rate increase in July; nominal neutral rate estimates for Japan range from 1 to 2 percent; IMF now expects the policy rate to reach 1.5 percent in 2027.
China: activity, policy measures, and outlook
- China growth revised down to 4.8 percent in 2024 (from 5 percent in July WEO update/Article IV consultations).
- Drivers of downgrade: deceleration since Q1, continued deterioration in the property sector weighing on investment, weakened private consumption amid low consumer confidence.
- September monetary and financial sector policies were incorporated into the baseline forecast; additional fiscal and housing measures announced subsequently (October) could provide upside potential, especially in 2025 when measures are likely to take effect.
- Q3 data came out marginally weaker than expected; the forecast reflects measures announced in September.
- IMF view on policy: central government support to finish pre-sold housing and resolve unviable developers is important in the near term; medium-term consolidation and refocusing on social safety nets and pension reform recommended to rebalance demand and reduce imbalances.
External environment and trade fragmentation
- External environment described as tougher; risks now tilted to the downside.
- Tentative signs global demand could weaken, including from the United States — negative for export-dependent Asia.
- Evidence of trade flow adjustments: China exports relatively more to emerging markets and less to advanced economies than five years ago; ASEAN economies export more to China and the U.S. as U.S. and Chinese targeted trade is channeled through third countries.
- IMF assessment: trade fragmentation is costly, slows global growth, and disproportionately harms Asia due to deep integration into global supply chains.
- Short-run: some third-party Asian economies (e.g., Thailand, Korea, Singapore, Vietnam) have captured targeted export opportunities; long-run: everyone loses from fragmentation as global demand falls.
Fiscal policy, public debt, and fiscal consolidation
- Fiscal space varies: many Asian central banks have room to ease, but fiscal space is limited in many countries.
- Pacific Island countries: public debt increased sharply during the Pandemic; debt ratios almost doubled and have hardly come down since then, raising debt service costs and constraining spending power.
- IMF recommendation: for some economies with weak private demand, somewhat larger fiscal deficits may be justified in the near term; for most Asian countries, it is time to start budget reconsolidation in earnest to build buffers against downside risks and preserve spending power for long-term challenges (climate change, population aging).
- Across Asia since the global financial crisis: public debt has been rising; growth-friendly fiscal consolidation is emphasized.
Structural transformation and long-term growth strategy
- Asia’s traditional model: shifting labor from agriculture into manufacturing and exporting manufactured goods — described as a spectacular development success.
- Recent decades: economies shifted more into services; modern services often more productive than manufacturing.
- Trend expected to continue as income rises and demand for services increases.
- Digital technology is making some services (business and finance) tradable internationally — presents large growth opportunities if reforms are pursued.
- Policy priorities: education and training to equip workers with skills for modern services; opening services sectors to trade and investment (services remain relatively closed compared with manufacturing).
- IMF to publish Regional Economic Outlook on November 1 in Tokyo, with an analytical piece about the future of Asia's growth model.
Country-specific highlights and projections
- China
- 2024 growth forecast: 4.8 percent (revised down from 5 percent).
- Core inflation: 0.1 percent year-on-year in September.
- Q3 activity: marginally weaker than expected; additional fiscal/housing measures announced could raise 2025 growth.
- India
- India seen as the strongest growing major emerging market economy.
- Last year: 8 percent growth.
- Current fiscal year: projected 7 percent.
- Forecast trajectory: 7 percent this year then 6.5 percent (return to potential in coming years).
- IMF notes scope for higher potential with structural reforms (labor, fiscal, education/skilling, infrastructure).
- Japan
- Neutral rate estimates: 1 to 2 percent.
- Policy rate expected to reach 1.5 percent in 2027.
- Authorities remain committed to a flexible exchange rate regime; yen has experienced depreciation and appreciation with carry-trade dynamics amplifying moves.
- Korea
- 2024 forecast: 2.5 percent.
- 2025 forecast: 2 percent (growth slowing toward potential).
- Domestic demand weaker historically due to erosion of purchasing power and high private debt burdens; expected to strengthen as Bank of Korea eases and inflation declines.
- Highly exposed to U.S.–China trade tensions; further escalation is a major downside risk.
- Indonesia
- 2024 projection: 5 percent.
- 2025 projection: 5.1 percent.
- Key risks: trade fragmentation, commodity market channels, shifts in monetary expectations and financial volatility.
- Bangladesh
- FY25 growth projection revised to 4.5 percent from April projection of 6.6 percent.
- Reasons: recent slowdown, persistent high inflation; program discussions ongoing regarding next review and financing.
- Sri Lanka
- IMF-supported program length: 48 months.
- Debt restructuring: agreements reached with official creditors and agreement in principle with private creditors; formal agreements with all creditors remain next steps.
- IMF engagement continues with new government; authorities expressed unanimous consensus to safeguard program gains. Macro-linked bonds discussed as creditor-country negotiation instruments; IMF focuses on consistency with program debt targets and comparability of treatment.
- Pacific Island countries
- Public debt increased sharply during the Pandemic; in most countries it has now stabilized or is falling relative to economy size.
- Risk classification: seven out of 12 countries considered at high risk of debt distress; about 5 at moderate risk.
- IMF advice: access concessional financing or grants to address climate and long-term needs while avoiding excessive debt burdens.
- ASEAN and Southeast Asia
- Some ASEAN economies captured export market share from U.S.–China targeted trade; nonetheless, net effect of fragmentation is negative.
- Policy recommendations: strengthen multilateral trading system, pursue regional trade integration (especially services), implement horizontal structural reforms (education/upskilling), and maintain macro stability with flexible exchange rates as buffers.
Policy recommendations (from briefing)
- Monetary policy
- As inflation falls, many Asian central banks have room to ease; some may have held back for fear of currency pressure but Fed easing reduces that constraint.
- Any further BOJ tightening should proceed gradually given balanced inflation risks.
- Fiscal policy
- Near-term: targeted, temporary fiscal support in countries with weak private demand may be warranted.
- Medium-term: begin budget reconsolidation in earnest to build buffers and preserve spending power for long-term priorities (climate, aging).
- For Pacific islands and countries with high debt, prioritize concessional financing/grants for climate-related and long-term investments.
- Structural reforms
- Invest in education and training to equip workers for modern services and digital tradability.
- Open services sectors to trade and investment to capture global services market opportunities.
- Implement labor market and fiscal reforms to raise potential growth (noted specifically for India).
Q&A summary: risks, data, and program implementation
- External risks emphasized: further U.S.–China trade tensions and trade fragmentation, weaker global demand (including U.S.), and commodity/market channels for some countries.
- Data signals referenced: China Q3 weaker than expected; China core inflation at 0.1 percent in September.
- Program and country-specific operational notes:
- Nepal: ECF arrangement started in 2022; four reviews completed; fifth review discussions underway after change in government; quantitative performance criteria strong; discussions on structural benchmarks ongoing.
- Sri Lanka: IMF conducted high-level engagement with new government; third review expected soon; creditor agreements largely advanced but formalization pending; IMF will assess program details in discussions.
- Bangladesh: mission led by mission chief conducted review; growth lower than prior forecast; discussions on financing and next review ongoing.
- IMF stance on restructuring instruments: IMF does not dictate specific instruments (e.g., macro-linked bonds) but assesses consistency with program debt targets and comparability of treatment across creditors.
Transcript of Press Briefing: Asia and Pacific Department Regional Economic Outlook October 24