Asia's growth momentum is waning but the region remains a critical driver of worldwide economic expansion, the International Monetary Fund (IMF) said.
In its latest Regional Economic Outlook (REO) for Asia and Pacific, the Washington-based lender said that it expected regional growth to rise to 4.6 percent this year from 3.9 percent last year.
The 2023 forecast was unchanged from April but that for 2024 was lowered to 4.2 percent from 4.4 percent.
"Strong consumer spending has supported growth in Asia's three largest economies this year, but there are already signs that the region's recovery may be running out of steam," Asia-Pacific Department Director Krishna Srinivasan said in a briefing on Friday.
"The region is facing challenges from persistent medium-term output losses and China's structural slowdown, geoeconomic fragmentation, and inflation," Srinivasan added.
"Our less-optimistic assessment is based on signs of slowing growth and investment in the third quarter, in part reflecting weaker external demand as the global economy slows, such as in Southeast Asia and Japan, and faltering real estate investment in China," he added.
China's economic recovery, the IMF said, is slowing down sooner than anticipated.
Growth is expected to hit 5 percent this year but drop to 4.2 percent next year due to a worsening property sector.
"The drag from China would historically have been offset by forecasts for faster growth in the United States and Japan, but the resulting boost is likely to be more muted this time," Srinivasan said.
"The strength of the US economy has been focused in the service sector, rather than in goods, which doesn't fuel greater demand for Asia," he added.
In the short term, Srinivasan said that significant changes in China's debt-laden property sector and the subsequent economic slowdown were likely to affect the region, especially countries that export commodities and have strong trade connections with China.
"An aging population and slowing productivity growth will further temper growth over the medium-term in China, amid rising risks of geoeconomic fragmentation, and bear upon prospects in the rest of Asia and beyond," he added.
Asian economies closely tied to China's economy could see a potential 10 percent output decrease over a five-year period.
Finance Secretary Benjamin Diokno has claimed that Philippine economic growth would be bolstered by domestic demand.
The IMF has lowered its outlook for Philippine growth to 5.3 percent for this year, down from 6.2 percent in July. It expects growth to pick up to 5.9 percent the following year, improving from the previous forecast of 5.5 percent.
Both forecasts fall below the government's 6.0- to 7.0-percent target for this year and the 6.5-8.0 percent for 2024 to 2028.
On a positive note, Srinivasan said that disinflation was on the whole progressing in Asia.
Still, he said "the global environment remains highly uncertain, and while risks to the outlook are more balanced than they were six months ago, Asia's policymakers must stay the course to ensure continued growth and stability."
"A sudden tightening of global financial conditions could lead to capital outflows and put pressure on Asia's exchange rates that would threaten the disinflation process," he added.
Countries like Australia, New Zealand, and the Philippines, where inflation remains above targets, should continue to show their dedication to lowering inflation.
This means sticking to tight monetary policies until inflation consistently drops to the desired level and people's expectations are firmly re-established.
The Bangko Sentral ng Pilipinas (BSP) has flagged the possibility of a 25 basis points (bps) increase in November with inflation having risen in the last two months.
BSP Governor Eli Remolona Jr. has said that monetary authorities were not done with tightening but added that any increase would not be of a magnitude to stifle growth.
"Where tight monetary conditions are straining financial stability, supervisors must monitor systemic risks closely," Srinivasan said.
"And with public debt still high across most of the region, the ongoing gradual fiscal consolidation should continue to build room for maneuver and to ensure debt sustainability," he added.
As long-term outlooks worsen, Srinivasan emphasized the need for countries to intensify their efforts in pursuing reforms that boost growth.
By increasing government revenue and wisely allocating it to areas like education and infrastructure, he said countries could manage public debt and address essential needs.
"Strengthening multilateral and regional cooperation and mitigating the effects of geoeconomic fragmentation are increasingly vital for Asia's economic outlook in coming years," Srinivasan said.
Source: Manila Times