Asia’s overall growth rate is likely to slow from 5 per cent last year, but the region would remain the engine of the global economy and provide two-thirds of global growth, the IMF said in its latest Regional Economic Outlook for Asia and Pacific titled ‘Resilience Amid Uncertainty: Can it be Sustained?’.
The largest upgrades are for India, Korea and parts of Southeast Asia, which are benefiting from strong demand along the tech supply chain.
IMF has raised its Asia-Pacific growth forecast to 4.8 per cent this year and 4.4 per cent next year, citing resilience amid energy shocks, tariffs and supply-chain disruption.
Asia will provide two-thirds of global growth, with upgrades for India, Korea and parts of Southeast Asia; risks include high oil prices, weaker low-income and Pacific island economies, debt yields and AI-led job shifts.
Trade has also performed better than feared. Exports, including non-tech products, have continued to grow, and intra-Asia trade has surged even as commerce with the US fell. Asia-Pacific governments have resisted restrictive practices and moved ahead with deeper regional trade agreements.
The resilience is not uniform across the region. Projections for low-income and Pacific island economies have been revised down, substantially in some cases. Fuel price increases have added to cost-of-living pressures that were already building before the oil shocks. Diesel is important for electricity generation in low-income countries, while jet fuel is essential for air travel, particularly to Pacific island countries. Many countries also show signs of K-shaped growth, with some groups or sectors advancing while others fall behind.
One reason for the region’s resilience is that many economies have adapted better than expected to oil shocks. China has drawn on oil reserves and reduced demand, including through greater use of renewables. India and Japan have found alternative supply sources, while governments across Asia have used policy measures such as fuel price caps and subsidies to protect households and firms.
Another factor is the AI-related boost to global demand for technology goods and services, seen most clearly in high-end semiconductors and other components, as well as large investments in data centres. The outlook said there was reason for cautious optimism, but oil prices are likely to remain high and volatile for longer than previously expected, while adaptation has limits, including how far crude inventories can stretch.
Broad-based and often untargeted fiscal support is adding pressure to public finances in many economies. Sovereign debt yields are rising sharply around the world, including in Asia, and investors are increasingly concerned about the sustainability of public finances. Many Asian economies have reduced deficits, but some have delayed consolidation amid spending pressure from ageing populations, defence commitments and rising interest bills.
Structural employment challenges are also becoming more important. Many Asian economies still have young populations, and the region will need to create nearly 150 million jobs over the next decade. Manufacturing previously generated employment, but the sector is becoming increasingly capital intensive, increasing the need to create good knowledge jobs in services sectors, as per the outlook.
The IMF reviewed millions of online job postings to assess how AI is affecting labour markets across Asia. Its analysis suggests that employer demand fell with the onset of AI in jobs where AI can be used more extensively than in occupations with less exposure, by as much as 10 per cent. The decline has since stabilised even as AI has become more capable.
Employers increasingly want workers who can use AI to do more, from sharpening prompts to connecting AI with workplace data and expertise. The IMF said this suggests AI is reshaping work more than eliminating it, with employers still seeking people for knowledge-based work.
Fibre2Fashion News Desk (SG)
