The International Monetary Fund has raised its growth forecast for this year for the Asia-Pacific region but also warned of “significant” uncertainty and risks to growth.
The IMF now sees 5.5 percent growth for 2017 up from the October forecast of 5.4 percent. It kept the forecast for 2018 unchanged at 5.4 percent.
For the moment it said low interest rates and central banks’ fiscal policies should underpin domestic demand in the region.
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In terms of risks the IMF is concerned about any sudden tightening in global financial conditions, such as when the US Federal reserve increases interest rates.
It also flagged up the risk of a rise in protectionist trade policies, of the kind threatened by US President Donald Trump.
Changyong Rhee, director of the IMF’s Asia and Pacific Department said that he hoped a recent agreement between Trump and China’s President Xi Jinping on a 100-day plan for trade talks would lead to expanded global trade rather than a reduction.
He told a news conference that he was “cautiously optimistic” at the moment.
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Age before wealth
The IMF also called on Asian countries to learn from Japan’s experience and act early to cope with rapidly aging populations, warning that parts of the region risk “getting old before becoming rich”.
Asia has enjoyed substantial demographic dividends in the past decades, but the growing number of elderly people is set to create a demographic “tax” on growth, the IMF said in its economic outlook report for the Asia-Pacific region on Tuesday.
“Adapting to aging could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old,” the report said. “Some countries in Asia are getting old before becoming rich.”
The population growth rate is projected to fall to zero for Asia by 2050 and the share of working-age people – now at its peak – will decline over the coming decades, the report said.
The share of the population aged 65 and older will increase rapidly and reach close to two-and-a-half times the current level by 2050, it said.
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The challenges are particularly huge for Japan, which faces both an aging and shrinking population. Its labor force shrank by more than seven percent in the past two decades, the IMF said.
The high percentage of its citizens living on pensions may be behind Japan’s excess savings and low investment, which are weighing on growth and blamed in part for keeping inflation below the Bank of Japan’s two percent target, the report said.
“Japan’s experience highlights how demographic headwinds can adversely impact growth, inflation dynamics and the effectiveness of monetary policy,” it said.