The International Monetary Fund on Friday urged Asian countries to lower non-tariff barriers and integrate regional trade to reduce the vulnerability to US tariffs and global financial shocks amid trade war and high uncertainties.
In its regional economic outlook report for Asia, IMF stated that Asia's economic growth runs with the backbone of trade as China serves as the supply chain hub for goods production across the globe, making it vulnerable to the hit from US-China trade tensions and US President Donald Trump's tariffs.
Trade friction with the U.S. and an investment boom in artificial intelligence have led to rising intra-regional trade in Asia, the report said.
IMF recommended promoting further regional trade integration, including by removing trade barriers. These could help Asia diversify export markets, reduce costs and offset some of the headwinds from the tariff shocks.
At the same time, structural reforms to support the services sector, reduce incentives for capital misallocation and mitigate the impact of aging are essential for enhancing medium-term growth potential and rebalancing regional economies, it added.
"If Asia integrates more within the region, that itself provides you a buffer against external shocks," Krishna Srinivasan, director of the IMF's Asia and Pacific Department, told Reuters.
Asia is highly integrated in intermediate goods trade, with about 60% of total exports made within the region, Srinivasan said. By contrast, only 30% of final goods exports by Asian countries are made within the region - a sign of the region's reliance on U.S. and European markets, he added.
As per the IMF report, Asia can benefit from pursuing broader-based trade agreements, such as one seen in the European Union, as its current focus on bilateral agreements create overlapping rules and inconsistent standards. Lowering non-tariff barriers, which increased during the COVID-19 pandemic and remain pervasive in Asia, could deliver sizable benefits, it said.
In fact, some countries are voluntarily reducing non-tariff barriers as part of trade negotiations with the U.S., which is a "very positive" trend, Srinivasan said, addind that Asia could see gross domestic product rise by as much as 1.4% over the medium term with greater regional trade integration and the Association of Southeast Asian Nations economies by as much as 4%.
"There is a silver lining in that some countries, which had to liberalise anyway, are now liberalising," he said.
The UN agency expects Asia's economy to expand 4.5% in 2025, slowing from 4.6% last year but up 0.6 percentage point from its estimate in April, amid strong exports driven in part by front-loading of shipments ahead of higher U.S. tariffs.
IMF expects growth to slow to 4.1% in 2026 citing impact of trade tensions, weak demand in China and soft private consumption in emerging economies.
"While trade policy uncertainty has declined somewhat compared to April, it remains high and could weigh on investment and sentiment more than expected," the IMF said. “Tighter financial conditions due to domestic or global developments could amplify trade shocks and compound vulnerabilities, and economic vulnerabilities could amplify social tensions.”
In its regional economic outlook report for Asia, IMF stated that Asia's economic growth runs with the backbone of trade as China serves as the supply chain hub for goods production across the globe, making it vulnerable to the hit from US-China trade tensions and US President Donald Trump's tariffs.
Trade friction with the U.S. and an investment boom in artificial intelligence have led to rising intra-regional trade in Asia, the report said.
IMF recommended promoting further regional trade integration, including by removing trade barriers. These could help Asia diversify export markets, reduce costs and offset some of the headwinds from the tariff shocks.
At the same time, structural reforms to support the services sector, reduce incentives for capital misallocation and mitigate the impact of aging are essential for enhancing medium-term growth potential and rebalancing regional economies, it added.
"If Asia integrates more within the region, that itself provides you a buffer against external shocks," Krishna Srinivasan, director of the IMF's Asia and Pacific Department, told Reuters.
Asia is highly integrated in intermediate goods trade, with about 60% of total exports made within the region, Srinivasan said. By contrast, only 30% of final goods exports by Asian countries are made within the region - a sign of the region's reliance on U.S. and European markets, he added.
As per the IMF report, Asia can benefit from pursuing broader-based trade agreements, such as one seen in the European Union, as its current focus on bilateral agreements create overlapping rules and inconsistent standards. Lowering non-tariff barriers, which increased during the COVID-19 pandemic and remain pervasive in Asia, could deliver sizable benefits, it said.
In fact, some countries are voluntarily reducing non-tariff barriers as part of trade negotiations with the U.S., which is a "very positive" trend, Srinivasan said, addind that Asia could see gross domestic product rise by as much as 1.4% over the medium term with greater regional trade integration and the Association of Southeast Asian Nations economies by as much as 4%.
"There is a silver lining in that some countries, which had to liberalise anyway, are now liberalising," he said.
The UN agency expects Asia's economy to expand 4.5% in 2025, slowing from 4.6% last year but up 0.6 percentage point from its estimate in April, amid strong exports driven in part by front-loading of shipments ahead of higher U.S. tariffs.
IMF expects growth to slow to 4.1% in 2026 citing impact of trade tensions, weak demand in China and soft private consumption in emerging economies.
"While trade policy uncertainty has declined somewhat compared to April, it remains high and could weigh on investment and sentiment more than expected," the IMF said. “Tighter financial conditions due to domestic or global developments could amplify trade shocks and compound vulnerabilities, and economic vulnerabilities could amplify social tensions.”
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