REGIONAL REPORT
Asia , the disinflation process was essentially complete by the end of 2023 . For 2024 , we expect the lowest inflation rate in almost 25 years . In advanced Asia , progress has been slower . As through mid-2024 , wage pressures kept services inflation elevated . Often these reflected efforts by workers to recuperate real income losses suffered in 2021 to 2023 . However , in recent months , service inflation has started to retreat and most advanced economies are now also back to policy targets ,” he continued .
He outlined the critical importance of China for the region . The IMF had forecast growth at 4.8 per cent in 2024 , and 4.5 per cent in 2025 , for China . Around 55 per cent of trade in Asia is intra-regional ( countries trading with each other ). A slowdown in China could have a significant bearing on Asia ’ s exports or intra-regional trade . Similarly , a slowdown in the U . S . market will also have a bearing on exports from the region . Srinivisan believes that it is important for China to reorient its economy away from export and investment-led growth to more consumption-led growth .
“ The Chinese economy continues to suffer from adjustment in the real- estate sector . You look at any measure of housing sector activity , it ’ s been continuously declining . The drag is weighing on private demand with sluggish retail sales and slower loan growth . At the same time , industrial production has held up better supported by exports of equipment and manufactured products . So , domestic demand remains weak in China , but it is getting some support from the external demand side through higher exports ,” Srinivasan explained .
He confirmed that Japan ’ s growth suffered from supply disruptions in the automotive industry in the first half of 2024 . These factors , he said , have since dissipated .
“ Forward-looking indicators for Japan are encouraging . Real wages are recovering on the heels of the shinto wage agreement that boosted nominal wages by 3.5 per cent and total compensation by more than five per cent . Headline and core inflation both remain above the Bank of Japan ’ s target of two per cent ,” outlined Srinivasan .
“ Asia remains the world ’ s engine of growth . It generates 60 per cent of global economic growth , far more than its share in global GDP of about 40 per cent ,” he added .
India , he confirmed , remains the world ’ s fastest growing major economy . In 2024 , it benefited from a good agriculture season which is boosting rural consumption . Korea benefits from strong global demand for technology products , even though domestic demand was soft in the first half of this year . Australia is coping with residual services inflation and a tight monetary stance . In the ASEAN economies , growth is overall robust and balanced , even though there are important differences
Chureito pagoda and Mount Fuji during Autumn in Japan .
Asia has brought inflation down to low and stable rates faster than other regions
Image : Shutterstock . com .
The Shanghai interchange . between individual economies . The Pacific-island countries are benefiting from a recovery in tourism , even though its impact on growth may fade in 2025 , added Srinivasan .
An eye on exports
Asia is an export-dependent region , which is affected by any slowdown in global growth . Trade flows are adjusting to various trade restrictions . China , for example , exports relatively more to emerging markets and less to advanced economies than five years earlier . ASEAN countries export more to both China and the U . S . as trade targeted by U . S . and Chinese tariffs are channelled through third countries .
With U . S . -China trade tensions set to intensify , what could be the medium-term impact for Southeast Asian countries which may benefit from companies relocating their manufacturing facilities , but could also be targeted by higher U . S . tariffs ?
“ With any kind of geoeconomic fragmentation , whether it takes the form of friendshoring or reshoring or just in terms of the number of trade restrictions we see , the impact is larger on Asia . That ’ s because Asian economies are much more integrated in global supply chains . There has been a shift in trade pattern . China is exporting a lot more to emerging markets in Asia and elsewhere , whereas emerging markets in Asia are exporting a lot more to U . S . and other advanced economies ,” explained Krishna Srinivasan of the IMF in November 2024 .
“ If you go beyond that to look at what ’ s happening to goods which were targeted by U . S . -China trade tensions , in those targeted sectors countries in ASEAN have done well . In other words , their exports of those targeted sectors is higher than of the non-targeted sectors . This is not to say that overall trade growth has got better . If you look at overall export growth , some countries have clearly done better ( like Vietnam ) but others ( like Thailand ) have not done well . So , in aggregate terms , export growth is a mixed picture but in the targeted sectors , ASEAN countries have occupied more market share as connected countries ,” he added .
Geopolitical tensions in the Middle East also have the potential to disrupt trade in Asia-Pacific ( for example , if oil and commodity prices rise ). For Asian countries which are oil importers ( such as India ), that impact could be much more significant .
Image : Denys Nevozhai .
The AI effect on Asia ’ s economies
Asia-Pacific ’ s economies are likely to experience labour market shifts because of artificial intelligence , with advanced economies being affected more . About half of all jobs in the region ’ s advanced economies are exposed to AI , compared to only about a quarter in emerging market
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