The full impact of tariffs on Asia-Pacific is yet to come, warns IMF

Copyright © HT Digital Streams Limited All rights reserved. The IMF expects Asia’s gross domestic product growth to moderate in the second half, leaving annual growth at 4.5%. This would compare with 4.6% last year. Summary Asia-Pacific economies performed better than expected in the first half of the year, but the IMF warns that the full impact of US rate hikes remains unclear, and growth will slow. Asia-Pacific economies performed better than expected in the first half of the year, but the IMF warns that the full impact of US rate hikes remains unclear, and growth will slow. “The intensification of trade tensions remains a major downside risk for the region,” the International Monetary Fund said in a report on Friday. Exports and economic momentum have exceeded expectations across the region, but some of that is likely due to the wind that may soon dissipate. The rush to lock in orders before tariffs rose has fueled demand for Asia’s goods, as has the artificial intelligence boom, which has been a boon for economies across the semiconductor and electronics supply chain. While policy uncertainty has cleared somewhat as tentative trade deals have been struck and US tariffs settled at lower levels than initially announced, the potential for volatility remains high. This could weigh on investment and sentiment more than expected, the IMF said. The external threat comes at a difficult time for the region: Domestic demand, especially consumption, remains below pre-pandemic levels in many countries, it said. Weakness in services sectors, downturn in property sectors and lower consumer sentiment limited the post-Covid recovery in jobs and income growth, the fund said. Institutional constraints such as limited scope for fiscal support due to high debt also hampered consumption. The IMF expects Asia’s gross domestic product growth to moderate in the second half, leaving annual growth at 4.5%. This would compare with 4.6% last year. As the negative impact of US tariffs builds, regional growth will slow further to 4.1% next year, according to the fund. The AI-driven investment boom has supported growth, but it could be a double-edged sword, the IMF said. Rapid AI adoption could pose new socio-economic challenges, including widening productivity gaps between large and small businesses, and job displacement, said the IMF, which called for structural domestic reforms to spur demand and support income and job growth. “Purposeful fiscal and monetary policy should be used to ease the impact of trade shocks and provide temporary support,” it added. The IMF’s report comes ahead of a highly anticipated visit by US President Trump to Asia, during which he is expected to meet with Chinese leader Xi Jinping. Whether tensions between Washington and Beijing escalate or defuse will have implications for the region. Frictions between the US and China since 2018 have already led to changes in the Asia-Pacific supply chain, the IMF report said. The US is a top export destination for many Asian economies, and China is central to the region’s supply chains to serve overseas markets. A cooling in tensions would help reduce uncertainty, boost investment and productivity, while renewed escalation could further weigh on confidence, he said. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #economy Read next story