Against all odds: Asian economies poised for increased economic growth

Asian economic trends

The Asian region continues to experience an improving economic growth even in the face of growing concerns about protectionism and slow productivity that results from an aging population, according to IMF latest assessment.

The Regional Economic Outlook for Asia is confident that the growth rates are likely to increase to 5.5% up from 5.3% in 2016. It is expected that growth will remain healthy going forward, and is likely to stand at 5.4% in 2018.

The report points to a favourable global environment and the accelerating growth in major and emerging markets as the drivers of growth in the Asian region. Additionally, risk appetites remain high in spite of bouts of capital flow volatility that appeared late last year. However, spread betting companies like CMC Markets are trading with confidence in many Asian countries.

Signs of growth

“The signs of growth are evident in this region, and are so far quite encouraging,” says Changyong Rhee, the Director of the IMF Asia and Pacific Department. Nevertheless, Rhee notes that the challenge now is in strengthening and sustaining this growth momentum.

The trend in China

China is Asia’s biggest and the world’s second largest economy. China’s momentum is likely to sustain following the policy stimulus that will support constant demand. Despite being robust in the first quarter of this year, 2017, the trend is likely to experience a slight dip from 6.6% this year to 6.2% in 2018.

The cooling housing market, reflecting weaker wages and consumption growth, predicates the imminent slowdown in the world’s second-largest economy. A stable fiscal deficit only serves to strengthen China’s downward trend in the coming in the coming year.

Japan’s forecast for 2017

By expanding the monetary policy and postponing the consumption tax hike from 2017 to 2019, Japan has managed to raise its economic growth rate to 1.2%. However, the growth is likely to take a small bump in 2018, as the effect of the country’s fiscal stimulus wears off.

There is plenty in store for the Japanese economy, as the Asian country strives to diversify its business operations. The state has put measures in place to expand its markets abroad, as well as boosting its returns through various avenues on the local front. Japan is now engaging in food processing, even as it expands its electronics industry.

The outlook for South-eastern Asia

Other South East Asian economies seem to be doing well although there are a few exceptions. India, for instance, looks to bounce back to 7.2% in the current financial year, having suffered cash shortages that accompanied the currency exchange initiative ease.

Most of the South East Asian economies are likely to accelerate further this and coming years, thanks to the robust domestic demand. It should be noted that domestic demand plays a significant role in boosting the economies of these countries. Meanwhile, the situation in Korea may remain subdued due to a weak domestic consumption. It is projected to stay put at 2.7%.

Clouds of uncertainty

Despite the Asian economies being poised to perform better this and the coming years, clouds of uncertainty seem to be gathering momentum. The clouds are moving in from external quarters. Such quarters include the US fiscal stimulus, which may result in unexpected inflation pressures. It would be especially the case if the Federal Reserve increases interest rates, resulting from a strong US dollar. The result would be the unprecedented level of inflation in Asian countries, and they could choke economic development.

Similarly, a tightening of the global financial conditions may affect the Asian economies adversely. It could lead to high external financing needs which would be worsened by the weak private sector. This situation could trigger capital outflows as local investors look for green pastures abroad. It remains to be seen if the respective government will take appropriate measures to arrest the situation.

The way forward

An aging population means fewer workers and a less productive workforce. It could also lead to increased cost of healthcare because as people age, they become more vulnerable to diseases. Consequently, Asian nations will need to open their door wide to welcome immigrants to boost their workforce. To encourage the local workforce to be more productive, the countries need to boost their pension systems. They could also consider investing more in research and advanced education to equip the local population with the skills required for a sustainable economy.

The Asian economies may also need to attract more foreign investment. Foreign investors will bring in capital, and set up more businesses; hence, diversifying the economy.

In spite of the challenges facing Asian economies, the countries are poised for greater economic times. Essentially, their growth this year will stand at 5.5%, which is a slight improvement from last year. If the countries take measures to tackle the challenges facing them, they may experience a higher economic growth in coming years.

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