Asia: Stabilizing and Outperforming Other Regions

  • Robust, stable outlook for Asia and Pacific, which remains global growth leader
  • Lower potential growth, with continuing risks from rising credit-related vulnerabilities
  • Policies should remain focused on boosting resilience
  • Growth will be driven by domestic demand, underpinned by healthy labor markets, low interest rates, and the recent fall in oil prices. The global recovery, while moderate and uneven, will continue to support Asia’s exports, say the report’s authors.

    Regional mix

    Performance across the region is expected to be mixed (see table). China’s economy is slowing to a more sustainable pace—6.8 percent GDP growth in 2015, and 6.3 percent in 2016, while growth in Japan is picking up to 1.0 percent this year, and 1.2 percent next year.

    India’s growth rate is expected to rise to 7.5 percent this year and next, making it one of the fastest growing economies in the world. Within the Association of Southeast Asian Nations (ASEAN), while Malaysia is expected to slow, the Philippines should see growth increase. Overall, lower commodity prices are a net positive for Asia, although several commodity exporters (Australia, Indonesia, Malaysia, and New Zealand) will be adversely impacted.

    Asia will remain the global growth leader, even though potential growth—the economy’s speed limit—is likely to slow (Chart 1). While Asia accounts for nearly 40 percent of global output, it contributes nearly two-thirds of global growth. Asia’s leading role in world growth is set to continue over the medium term despite slowing potential growth, which reflects weaker productivity gains, the effects of aging, and infrastructure bottlenecks.

    Risks tilted to the downside

    The outlook could be vulnerable to adverse events, says the report. This reflects the potential for slower-than-currently-expected growth in China and Japan, which could spill over to the rest of the region—and the global economy—through trade and financial channels.

    Debt levels—including foreign currency-denominated debt—have increased rapidly in recent years, and Asia is now more vulnerable to financial market shocks, and persistent U.S. dollar strength, which would raise the cost of servicing debt, and could curtail demand.

    The large swings in the value of the major reserve currencies could create an uncomfortable trade-off between financial stability and competitiveness. On the other hand, lower energy prices could provide a further boost to Asia’s growth if more of the savings on oil...

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