IMF upgrades Asia’s 2024 growth forecast to 4.5% driven by China and India

The growth projections for Asia this year have been increased by the International Monetary Fund (IMF), pointing to a more positive outlook for the top two economies in the region and suggesting a possible upward revision for China's forecast. Asia is expected to grow by 4.5% in 2024 compared to the previous year, marking a 0.3 percentage point increase from last October, according to the IMF’s report released on Tuesday. However, this growth rate represents a slowdown from the 5% pace seen last year.

“The region grew by 5.0% last year, 0.4 percentage point stronger than forecast in October,” the IMF says.

“Economic activity in Asia and the Pacific outperformed expectations in the second half of 2023, despite a challenging environment characterised by still-tight monetary policies and muted external demand,” it adds.

The updated forecast takes into consideration the higher growth projection for India announced earlier this month and the anticipated growth in China, fuelled by the expectations of government stimulus boosting economic activity. The IMF noted that China's first-quarter growth surpassed expectations due to strong exports and manufacturing demand, potentially leading to a further upward revision.

Krishna Srinivasan, director of the IMF's Asia and Pacific department, mentioned in a blog post that Asia’s growth is expected to be fuelled by domestic demand in 2024, “We have raised our regional growth forecast for this year to 4.5%, up 0.3 percentage point from six months earlier, after a 5% expansion in 2023. The revision reflects upgrades for China, where we expect policy stimulus to provide support, and India, where public investment remains an important driver, making it the world’s fastest-growing major economy. In a still subdued external environment, robust private consumption will remain the main growth driver in Asia’s other emerging market economies. The Asia growth forecast for 2025 is unchanged at 4.3%.”

China's government has increased spending this year to support its economy, which is still recovering from challenges in the property sector, aiming to achieve a growth target of around 5%. Similarly, India has boosted capital spending for the third consecutive year in 2024, says the international agency.

The IMF forecasts China's real GDP (gross domestic product) to grow by 4.6% in 2024 and India's to rise by 6.8% this year. The 2025 regional outlook for Asia remains unchanged with a projected 4.3% advance.

It states that in emerging markets, growth was primarily supported by strong private demand, with public investment making an important contribution in China and, especially, India.

Despite these positive trends, the IMF highlighted several risks, including a potential prolonged downturn in China's property sector affecting demand and deflation.

“First, weaker demand from China would cloud prospects for the region’s exporters. Second, declining Chinese export prices would put pressure on the profit margins of China’s competitors and, potentially, provoke retaliatory measures,” it states.

“A larger and more prolonged slump in real estate investment could diminish consumer confidence, intensify disinflationary pressures, and further compromise the balance sheets of local governments,” IMF adds.

The IMF also cautioned Asian countries against overly relying on the Federal Reserve's monetary policy path, as seen in Indonesia's unexpected interest rate hike to stabilise its currency against a strengthening US dollar.

“While following the Federal Reserve could limit exchange rate volatility, it risks that central banks would fall behind (or move ahead of) the curve and destabilise inflation expectations,” Srinivasan adds.