ASIA FACES ’SIGNIFICANT’ UNCERTAINTY

Risks seen from global financial tightening and rising trade protectionism

SINGAPORE

THE International Monetary Fund (IMF) said Asia’s economic outlook faces “significant” uncertainty and downside growth risks from any sudden tightening in global financial conditions or rise in protectionist trade policies.

The IMF, which in April raised its this year’s Asia-Pacific growth forecast to 5.5 per cent from its previous October forecast of 5.4 per cent, said loose monetary and fiscal policies across most of the region would underpin domestic demand.

“However, the near-term outlook was clouded with significant uncertainty, and risks, on balance, remain slanted to the downside,” said the IMF in its Asia-Pacific regional economic outlook released yesterday.

Last month, the IMF kept the region’s next year’s growth forecast unchanged at 5.4 per cent. Asia-Pacific recorded 5.3 per cent growth last year.

The report comes at a time when policymakers around the region are wrestling with the challenge of how to navigate rising risks of protectionism under United States President Donald Trump, and a potential increase in funding costs as the United States Federal Reserve steps up the pace of rate hikes.

“A possible shift towards protectionism in major trading partners represents a substantial risk to the region. Asia was particularly vulnerable to a decline in global trade because the region has a high trade openness ratio, with significant participation in global supply chains,” said IMF.

Emmanuel Macron’s victory in France’s presidential election was “good news” for open trade and globalisation, said Changyong Rhee, director of the IMF’s Asia and Pacific Department.

Rhee said he hopes a recent agreement between Trump and China’s President Xi Jinping on a 100-day plan for trade talks would lead to expanded global trade rather than a reduction.

Continued tightening of global financial conditions could trigger volatility in capital flows, and the region could see large spillovers if China’s shift to a more consumption-driven economy proves bumpier than expected, said the IMF.

Rhee reiterated that the IMF may need to upgrade its China growth forecast this year from 6.6 per cent after the economy expanded more than expected in the first quarter, though he said there are concerns about whether strong credit growth is being allocated efficiently. Reuters

BLOOMBERG PIC The IMF may need to upgrade its China growth forecast this year from 6.6 per cent after the economy expanded more than expected in the first quarter.