IMF Cautions on Trade Risks as It Upgrades Asia's Growth Forecast

By Kimberley Kao

Asian economies fared better than expected so far this year, but there's little room for complacency, the IMF said, echoing caution expressed by other organizations.

Many economists worry that a big part of the region's resilience rests on temporary factors: a rush to lock in purchases before U.S. tariffs rise has powered Asia exports growth past expectations, while a boom in artificial-intelligence has fed appetite for the region's staple exports like consumer electronics.

Asia's chip and electronics industries have benefited massively from surging AI investment, with countries such as South Korea and Japan riding a wave of high-tech exports.

That has helped economies outperform in the first half. Accommodative macro policies, booming equity markets, lower long-term borrowing costs and a weak dollar have lent support too, the IMF said.

The fund has nudged up its 2025 growth forecasts for Asia to reflect that but expects momentum to wane.

The IMF projects Asia's economic growth at 4.5% in 2025, versus 4.6% last year and 0.6 percentage point higher than its April forecast. Growth is expected to ease to 4.1% in 2026.

"A weakening in historical growth engines is compounding the effects of the uncertain trade environment," such as aging populations, slowing productivity growth and rising youth unemployment, IMF said.

In the IMF's view, Asia will need to rebalance more towards domestic demand and deepen regional integration if it wants to sustain lasting growth.

Governments should deploy targeted fiscal support for sectors hit by tariffs, lower rates where possible and pursue reforms to boost trade and investment, it said.

"The dust on tariffs has not yet settled," said Krishna Srinivasan, director of the IMF's Asia and Pacific Department.

Asia is highly integrated in global supply chains, "so when there are tensions between large economies like the U.S. and China, it will have a greater impact on Asia," Srinivasan said in a press briefing.

Trade-war risks resurfaced last week when Trump threatened an additional 100% tariff on China in response to new Chinese restrictions on critical minerals.

Trade policy uncertainty could lead interest rates to rise again, and tighter financial conditions could worsen debt-related vulnerabilities and stifle growth, Srinivasan said.

Others have voiced similar concerns about the economic outlook for the region.

Singapore's central bank recently warned of a potential "abrupt correction" in the AI investment boom that could rattle the global economy.

The Asean+3 Macroeconomic Research Office, a multilateral organization, said tariffs are expected to curb external demand and growth later this year and into 2026.

The Asian Development Bank likewise expects GDP growth in developing Asia--covering 46 member economies--to slow as tariffs take effect.

While trade deals have eased some risks, uncertainty over implementation and abrupt policy shifts persists, the ADB said.

"Resilience is not the whole story," said IMF's Srinivasan.

Write to Kimberley Kao at [e-mail]

(END) Dow Jones Newswires

10-17-25 0427ET