Asia to remain global growth engine despite tariffs, policy uncertainty: IMF

Asia’s growth story remains intact even as the region navigates slower external demand, tariff pressures, and persistent policy uncertainty, the International Monetary Fund (IMF) said, projecting the continent will continue to power the global economy into 2026.

According to the IMF’s latest outlook, growth across the Asia and Pacific region is forecast to ease slightly to 4.1 percent in 2026 from 4.5 percent this year, but the region will still account for about 60 percent of global growth over the next two years. Inflation, meanwhile, is expected to remain moderate.

An insight penned by IMF Asia and Pacific Department (APD) Director Krishna Srinivasan and IMF Asia and Pacific Department Deputy Division Chief Andrea Pescatori highlighted that projections show China’s growth slowing to 4.2 percent next year from 4.8 percent in 2025, while Japan’s economy is set to decelerate to 0.6 percent from 1.1 percent. India, Asia’s standout performer, will grow 6.2 percent in 2026, after expanding 6.6 percent this year, the fastest pace among major emerging markets. Korea’s growth is forecast to accelerate to 1.8 percent from 0.9 percent, and the ASEAN bloc is projected to hold steady at 4.3 percent.

Despite heightened trade tensions and elevated tariffs, particularly following the United States’ move to raise effective tariff rates to multi-decade highs, Asia’s resilience has been underpinned by stronger investment in artificial intelligence, intra-regional supply-chain shifts, and policy easing in key economies such as China, Korea, Indonesia, and Vietnam.

The IMF noted that exporters had front-loaded shipments ahead of new levies earlier this year, contributing to a temporary export surge. At the same time, production and sourcing patterns are shifting across the region, with Southeast Asia emerging as a pivotal hub for intermediate goods, reinforcing the regional trade network.

However, the Fund cautioned that several risks could test this resilience, including renewed tariff escalations, tighter global financial conditions, and demographic and productivity headwinds. 

“Aging populations, slowing productivity, and uneven post-pandemic recoveries are weakening traditional growth engines,” it said, pointing to rising social pressures in economies where unemployment and corruption perceptions remain high.

To sustain growth momentum, the IMF urged policymakers to focus on rebalancing economies toward private consumption, strengthening social safety nets, and creating a more enabling environment for the private sector. With inflation largely contained, the Fund said measured monetary easing and exchange-rate flexibility would help absorb shocks, while targeted fiscal measures should be deployed to protect vulnerable households and viable businesses.

In China, where property market stress continues to weigh on sentiment, the IMF recommended measures to repair balance sheets and complete pre-sold homes to restore confidence.

“Asia has proven its resilience, but the challenge now is to turn that resilience into durable, inclusive growth,” the IMF said, calling for structural reforms that enhance productivity, improve governance, and unlock the region’s next phase of expansion. 

(SAA)