IMF expects Asia’s economy to grow 4.6 per cent in 2024

Risks to Asia’s economy have increased from escalating trade tensions, China’s property sector woes and the potential for further market turbulence, the International Monetary Fund (IMF) said.

Persistent downward price pressures from China can “provoke trade tensions” by hurting sectors in neighbouring countries with similar export structures, the IMF said, urging Beijing to take steps to achieve a more demand-driven recovery for its economy.

“A longer and larger-than-expected slowdown in China would be harmful for both the region and the global economy,” the IMF said in its regional economic outlook report for Asia.

“China’s policy response is critical in this context,” it said, calling on the need for steps to facilitate property sector adjustment and strengthen private consumption.

In its latest forecast, the IMF expects Asia’s economy to expand 4.6 per cent in 2024 and 4.4 per cent in 2025 with looser monetary policy across the globe seen boosting private demand next year.

The projections for 2024 and 2025 were both revised up by 0.1 percentage point from the IMF’s forecasts made in April, but lower than the 5.0 per cent expansion in 2023.

Risks were “tilted to the downside” as past monetary tightening steps and geopolitical tensions could hurt global demand, increase trade costs and jolt markets, the IMF said.

“An acute risk is the escalation in tit-for-tat retaliatory tariffs between major trading partners,” which would aggravate trade fragmentation and hurt growth in the region, it said.

While low growth, high debt and escalating wars topped the official agenda at last week’s International Monetary Fund and World Bank annual meetings, finance leaders spent much of their energy worrying about the potential impacts of a return of Donald Trump to power in the Nov. 5 US presidential election.

Trump has vowed to impose a 10 per cent tariff on imports from all countries, and 60 per cent duties on imports from China, which would hit supply chains throughout the world, analysts say.

“It’s clear tariffs, non tariff-barriers and domestic content provisions are not the right solutions, since they distort trade investment flows and undermine the multilateral trading system,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, told a news conference on Friday. “At the end of the day, these kind of measures will lead to higher prices being paid by consumers and investors,” he said.

The IMF said recent market turbulence could also foreshadow future bouts of volatility as markets price in additional, large interest rate cuts by the US Federal Reserve, and gradual rate hikes by the Bank of Japan.

“Sudden changes in expectations of these policy paths could cause exchange rates to adjust sharply, with spillovers into other financial market segments,” the report said.

“Although volatility by itself would not necessarily be harmful, it could undermine consumer confidence and investment,” it said.

The IMF expects China’s economy to expand 4.8 per cent in 2024, up 0.2 point from its forecast in April but slower than last year’s 5.2 per cent increase. The country’s growth is expected to slow further to 4.5 per cent in 2025, the IMF said. China is targeting growth of roughly 5.0 per cent for 2024.

Meanwhile Japan must fund any additional spending plans within its budget rather than issue more debt, the International Monetary Fund said on Friday, urging the government to get its fiscal house in order as the central bank starts to raise interest rates.

“Given the fact that monetary policy normalisation is happening, it puts the onus on the fiscal side to actually embark on consolidation, which is, in my opinion, long overdue,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, told Reuters in an interview.

Japanese Prime Minister Shigeru Ishiba has pledged to compile another large-scale spending package to cushion the blow to households from rising costs. He has not commented yet on how the spending will be funded.

“Any kind of support you’re providing should be a lot more targeted, and any kind of new initiative should be financed within the budget,” Srinivasan said. “You should not be increasing more debt to provide for any new initiative.”

On monetary policy, Srinivasan said the Bank of Japan should raise interest rates in a “gradual” and “data-dependent” way as there were both upside and downside risks to inflation.

The BOJ maintained ultra-low interest rates on Thursday but said risks around the US economy were somewhat subsiding, signalling that conditions are falling into place to raise interest rates again.

BOJ Governor Kazuo Ueda has said the central bank will keep raising interest rates, currently at 0.25 per cent, if Japan makes progress towards sustainably achieving its 2 per cent inflation target.