Asia Needs to Navigate the Uncertain Global Environment and Build Inclusive Growth, Says the IMF’s Asia-Pacific Regional Economic Outlook
Asian countries have taken comprehensive reforms over the past decade to strengthen their financial, corporate and public sector balance sheets that are now providing strong buffers for the renewed global uncertainties. Thus, if the downside risks to the global outlook were to materialize, the IMF says that Asian economies have the scope to reverse course and use a range of measures to cushion the impact on economic activity, as many did in response to the global crisis in 2008.
Looking ahead, the crisis in advanced economies is a reminder of the need for Asia to now make further progress with economic rebalancing and develop stronger domestic engines of growth. In addition to structural reforms, this would require a reprioritization of fiscal spending, in order to create fiscal space for critical infrastructure investment and social priority expenditure.
Despite fast growth and progress in poverty reduction, income inequality in Asia has increased over the last decade — and by more than it has done in other regions. Key elements of a strategy to reduce the share of vulnerable households in Asia would include better social safety nets and more investment in health and education. Here the report suggests that measures that would help increase domestic demand over time, and make the region more resilient to external shocks, would also help to make growth in Asia more “inclusive.”
In sum, economies in the Asia Pacific region are still expected to continue growing at solid rates. However, downside risks from a weakening global economy have greatly intensified and underscore the need to shift the growth model for Asia. In the near-term, policy makers face the challenging task of navigating opposing risks to growth and financial stability amid a highly uncertain global environment, and a pause in monetary tightening may be warranted in some countries until such uncertainties have lessened. Looking farther ahead, strengthening Asia’s domestic sources of growth and making growth more inclusive are key to increase economic resilience over the medium-term.
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