View: IMF says Asia growth likely to be muted; risks & implications for India
Asia-Pacific should accelerate this year to 4.5%. But IMF estimate for growth next year has been lowered to just over 4%, based on signs of slowing growth and investment in Q3.
The economic boost that China enjoyed after its reopening is losing momentum earlier than expected. The sharp adjustment in its heavily indebted property sector and the resulting slowdown in economic activity should spill over to the Asia-Pacific, particularly to commodity exporters with close trade links to China.
An ageing population and slowing productivity growth will also further temper growth over the medium term.
IMF has raised its estimates of growth in the US and Japan. But the boost to the rest of Asia will likely be more muted this time.
The strength of the US economy has been focused on the services sector rather than on goods, which doesn’t fuel greater demand for Asia. US policies such as the Inflation Reduction Act and CHIPS and Science Act are re-orienting demand toward domestic sources, providing a smaller boost to imports from Asia.
Implications for India:
Continued resilient growth this year, at 6.3%, supported by strong government capex and consumption growth.
Direct impact of China’s slowdown on India should be relatively limited.
Although China is India’s fourth-largest export partner and leading source of imports, the share of India’s exports to China is only 3.5% of its total exports in the past year, significantly less than India’s exports to the US, EU or UAE.
FDI linkages to China account for less than 0.005% of total FDI inflows to India over the last three years. Which is why India’s real economy is likely to remain relatively less affected by developments in China than in other parts of Asia.
However, risks to
