The Asian region, given its outward orientation and its dependence on trade, will experience a very significant economic slowdown in 2019 and 2020, as trade tensions are taking a toll on manufacturing, investment and trade, an official from the International Monetary Fund says.
In a recent interview with Xinhua, IMF Deputy Director of the Asia Pacific Department Jonathan Ostry said trade tensions are drivers for a synchronized global slowdown, and in the case of Asia, the situation is similar.
“Given how open the Asian region is, how dependent on trade and investment and manufacturing and so forth, it is completely unsurprising that Asia would also experience a very significant slowdown in 2019 and 2020,” Ostry said.
The IMF said in its Regional Economic Outlook released Wednesday that headwinds from prolonged global policy uncertainty, distortionary trade measures, and growth deceleration in the economies of important trading partners are influencing economic growth in Asia and the Pacific, the Xinhua report said.
Growth in Asia is expected to decrease to 5.0% in 2019 and 5.1% in 2020, 0.4 and 0.3 percentage points lower than the projection in the IMF’s World Economic Outlook (WEO) published in April, respectively.
Although the region is still the world’s fastest growing major region, contributing more than two-thirds to global growth, near-term prospects have deteriorated noticeably since the April WEO, with risks skewed to the downside, the report said.
Ostry said that trade tensions not only have the direct effect of tariffs, but also impact confidence and financial markets, and such effects take a toll on investment and growth. “And so that’s what we’re seeing in the world, and we’re seeing it in the Asian region specifically given its outward orientation and its dependence on trade,” he said.
Speaking of China’s economy, Ostry said the official 6% growth rate in the third quarter was “very much in line with” the IMF’s forecasts in its October WEO released last week.
China’s economic slowdown is driven by the negative impact of the trade tensions, as well as the country’s transition from high speed to high quality growth, the IMF official said. “The sort of financial deleveraging, regulatory tightening, that is a deliberate part of the policies that China is seeking to follow in order to transition its economy to a more sustainable, high quality growth,” he said.
The IMF official also praised the steps China has taken to open up its financial sector in recent years, noting that bringing in foreign expertise might benefit the evolution of China’s financial sector, and more competition would be good for the Chinese economy.
“We see these very much as ways to increase efficiency and the capacity for China to grow well through further financial integration and further opening of its domestic financial services industry. So we welcome those steps,” he said.
When asked how he views the US Federal Reserve’s rate cuts, the IMF official said the easing policy makes it more likely for capital to flow to Asia, a positive spillover effect for Asian economies, the report said.
Moreover, he said, the easing measures of the central banks of developed economies “have provided room” for those in Asia to ease their policy and to support demand at home, which has offset some negative effects from the trade tensions and other global forces.
Ostry, meanwhile, expressed concern over low interest rates in some countries. “We worry about the search for yield, and we worry about that in the large industrial countries, but we also worry about the search for yield that crosses borders and that may be going to emerging markets, including those in Asia,” he said.
Noting that this may cause excessive risk-taking, the IMF official said Asian economies need a tightening of micro- and macro-prudential regulations to make sure that financial stability is safeguarded, which is “certainly a priority for Asian policy-makers.”