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The report, titled “Asia at the Forefront: Growth Challenges for the Next Decade and Beyond,” indicated that Asia continues to drive the global economy, with growth forecast at 5.6% this year and 5.4% next year. However, there are risks ahead, brought on by tighter financial conditions, rising trade tensions and slowing momentum in China.
The report also cited longer-term challenges for Asia’s growth prospects, including slowing productivity, population aging and the impact of the digital revolution on the future of work. Policies to tackle these challenges should help to strengthen economic resilience, sustain growth and ensure that their benefits are widespread.
Economic performance was strong in much of the rest of the Association of Southeast Asian Nations (ASEAN). In Vietnam, growth reached 7.1% year-on-year in the first half of this year, continuing a remarkable performance driven by strong exports, foreign direct investment inflows, and tourism.
The country’s inflation reached 4% year-on-year in August, but core inflation remained subdued at 1.5% year-on-year, the IMF stated.
Meanwhile, inflation is forecast to rise to just under the 4% target of the legislative National Assembly, led by higher oil prices and gradual increases in administered prices.
The report noted that low-income Asian economies have, with a few exceptions, not participated significantly in global value chains. Intermediate exports from Asia are largely from the medium/high-tech manufacturing sectors of advanced and emerging economies, with Vietnam being a somewhat rare example of a relatively new emerging market that has gained market share in electronics.
Global value chain participation is the sum of foreign value added to domestic exports (backward participation) and domestically produced intermediates used in third economies (forward participation), expressed as the ratio to an economy’s gross exports.
The regional assessment also highlighted the significant impact that digitalization is having on the region. For instance, digital innovations accounted for nearly one-third of Asia’s per capita growth over the past two decades.
To ensure that the region fully harnesses the digital dividend, the IMF suggests policymakers upgrade education, infrastructure and the regulatory environment. At the same time, digital disruptions, such as workers displaced by automation, will need to be addressed, and financial stability risks from fintech must be managed.
Excluding China, ecommerce penetration is lower in the rest of Asia, but it is growing fast. Lazada, for example, offers millions of products to online shoppers in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, according to the report.
The IMF cited the World Bank as indicating in 2016 that firms using ecommerce in Vietnam had, on average, 3.6 percentage points higher total factor productivity growth than firms not using ecommerce.
According to the report, there are downside risks to the forecast for both the near term and the medium term. Continued trade tensions could further undermine business confidence, hurt financial markets, disrupt supply chains and discourage investment and trade in the region.
To strengthen resilience and tackle these growing downside risks, the IMF suggests Asian economies adopt policies that support financial stability and sustain growth. Given the region’s vast diversity, policy priorities differ across economies.
Looking beyond the near term, Asia would benefit from reforms that address the region’s challenges, as well as ensure sustained and inclusive growth, according to the Washington-based organization.
