KUALA LUMPUR: Growth for countries in ASEAN is forecast to be at a robust 4.6 per cent this year and 4.7 per cent in 2025, largely supported by strong domestic demand and exports, the International Monetary Fund (IMF) said on Friday.
In its “Outlook for Asia and the Pacific: Resilient Growth but Higher Risks” report, it said Indonesia, the Philippines, and Vietnam are all projected to grow robustly (five per cent and above for the two years), while activity in Thailand remains more subdued (2.8 per cent growth in 2024 and 3.0 per cent growth in 2025).
Meanwhile, the IMF has revised its forecast for Malaysia’s real gross domestic product (GDP) growth for this year to 4.8 per cent from 4.4 per cent in April, while keeping its projection of 4.4 per cent growth in 2025 unchanged.
The financial institution said despite the China-United States (US) trade tensions, ASEAN has continued to strengthen trade and investment links with both China and the US.
“Moreover, the ASEAN economies appear to have found ways to capture export opportunities generated by Chinese and US tariffs,” it said.
The IMF said growth in Asia is forecast to slow to 4.6 per cent in 2024 and 4.4 per cent in 2025 from 5.0 per cent last year, reflecting fading support from the pandemic recovery and secular factors like population aging.
However, it said short-term prospects are somewhat more favourable than described in its April 2024 “Regional Economic Outlook: Asia and the Pacific” report.
IMF said regional growth in 2024 has been revised up marginally by 0.1 percentage point to 4.6 per cent, primarily reflecting the robust performance early in the year.
“With this, the Asia and Pacific region is expected to contribute roughly 60 per cent to global growth this year. Strength remains concentrated in emerging market economies.
“By contrast, growth in advanced economies is sluggish, owing to less buoyant private consumption and temporary production disruptions in Japan in early 2024,” it said.
For 2025, growth for the region has also been marked up by 0.1 percentage point to 4.4 per cent, as looser global and domestic monetary conditions are expected to boost private demand, especially in advanced economies.
However, the outlook is subject to sizeable economic and geopolitical uncertainties, the IMF said explained.
On inflation, the IMF said the average inflation is projected to drop to 2.2 per cent in 2024, before a mild resurgence to 2.6 per cent in 2025.
In advanced Asia excluding Japan, disinflation is projected to continue as the lagged impact of past monetary tightening weighs on wage growth and reins in services inflation.
For 2024, average inflation of 2.5 per cent is expected, receding further to 2.3 per cent in 2025, it said.
In emerging Asia, on the other hand, the IMF said average 2024 inflation is projected at 2.1 per cent -- the lowest rate in almost 25 years.
“In 2025, inflation is expected to recover somewhat to 2.7 per cent, largely reflecting the gradual normalisation of inflation rates in China and Thailand, which are currently at very low levels,” it added.
The IMF said that notwithstanding robust growth in the first half of 2024, the risk landscape has deteriorated since April, as worsening geopolitical tensions, China’s ongoing property market correction, and the possibility of more financial market turbulence are all complicating the economic environment.
“Risks are now tilted to the downside. This shift occurs in the context of already elevated policy uncertainty for several countries (but not all) in the region,” it said.
External demand could be weaker than forecast if the impact of past global monetary tightening is stronger than anticipated, it said.
“Until recently, monetary policy has been on hold in much of the world, but with inflation retreating, real policy rates have increased -- which could weigh on global activity and therefore on prospects for exports.
“Moreover, escalating international tensions and conflicts could impact Asia and the Pacific negatively, especially if there are spillovers to commodity and financial markets, or if tensions increase trade costs,” it said.
In advanced Asia, the IMF said, domestic demand could also suffer from the after-effects of past tightening, especially if regional central banks need to maintain a tight stance for longer to complete the disinflation process.
On monetary and exchange rate policy, IMF highlighted that in the first half of 2024, most Asian central banks kept policy rates on hold -- arguably reflecting concern about depreciation pressures if they were to cut before the US Federal Reserve (Fed).
It said the recent downward shift in the Fed’s interest rate expectations and start of its easing cycle have loosened this constraint and should grant Asian central banks more scope to adjust policy in line with domestic needs, as some central banks have begun doing.
IMF staff research shows that in the past three decades, Asian capital markets have deepened, balance sheet dollarisation has receded, and foreign reserves coverage has improved: all factors that should have increased the degrees of freedom for Asian central banks to focus on domestic conditions and let exchange rates adjust.
“Given the prospect of monetary and financial easing in many Asian economies, financial regulators and supervisors should monitor risks closely and, if needed, use macroprudential tools to address pockets of vulnerability, for example in real estate markets and other high-risk credit segments, to prevent the build-up of systemic risks.
“For example, household debt levels remain above peer averages in many regional advanced and emerging market economies,” it noted.
