Asia's economies may have been dragged by a slowdown in China, but they'll still power most of the world's growth, the International Monetary Fund (IMF) said Tuesday.
"Asia is impacted by the still weak global recovery, and by the ongoing and necessary rebalancing in China," said Changyong Rhee, director of the Asia-Pacific Department at the IMF, in a statement.
"But domestic demand has remained remarkably resilient throughout most of the region, supported by rising real incomes, especially in commodity importers, and supportive macroeconomic policies in many countries."
The Asia Pacific region is expected to grow at a strong 5.3 per cent this year, accounting for nearly two-thirds of global growth, the IMF said in its Regional Economic Outlook. That would still mark a tick down from last year's 5.4 per cent growth.
The IMF is forecasting India will remain the world's fastest-growing large economy, set to grow 7.5 per cent this year and next as it benefits from lower oil prices. Last year, India's economy grew 7.3 per cent.
It expects Vietnam will be among the region's fastest growing economies, while domestic demand will remain resilient in the Philippines and Malaysia. The IMF forecasts Vietnam's economy will grow 6.3 per cent this year, down from 6.7 per cent last year.
It expects Malaysia's growth will slow to 4.4 per cent this year from 5.0 per cent last year and it forecasts the Philippines' economy will expand 6.0 per cent this year, up from 5.8 per cent last year.
The IMF noted the region's downside risks loom large, ranging from slowing growth in developed markets and weak global trade, to low commodity prices and high domestic debt in certain countries.
But it added that outcomes could be more positive than its forecasts.
"Low commodity prices could be a bigger boost to the region's economies than expected; and regional and multilateral trade agreements, such as the Trans-Pacific Partnership, could benefit Asia-Pacific even before they are ratified," the IMF said.
But the outlook for individual countries varied widely.
China, which is rebalancing its economy away from a dependence on manufacturing and toward consumption, is expected to see its economic growth slow to 6.5 per cent this year and 6.2 per cent in 2017, from 6.9 per cent last year, the report said.
"While this transition to slower but more sustainable growth is desirable for both China and the global economy, it is causing changes in the manufacturing sector over the medium-term, as heavy industries, such as steel and shipbuilding, face major consolidation to reduce excess capacity," the IMF said.
But it also noted that not all of the regional spillovers from China's economy are negative. While there are larger costs short-term from exposure to China's slowdown, Asia also reaps medium-term benefits from that greater exposure, the IMF report said.
"While ongoing rebalancing in China will weigh more heavily on Asian countries with higher exposure to China's domestic investment, exposure to China's consumption will provide a buffer and may boost exports of some countries," it said, citing in particular Chinese consumers' interest in higher-quality, high-protein foodstuffs. An increase in outbound Chinese tourists will also benefit countries that attract them, the IMF said.
The multi-lateral lender also expects a marked slowdown in Japan's economic growth ahead. While Japan's GDP is forecast to grow at 0.5 per cent this year, in-line with last year, the IMF expects it will contract 0.1 per cent in 2017, hit by a widely expected increase in the consumption tax set for next year.
"This forecast does not take into account likely growth-supporting policies to offset the increase," the report noted, but it added "an ageing population and high public debt remain major drags on Japan's long-term growth."