The Asia-Pacific region remains the world’s fastest-growing economic area, but rising tariffs and protectionist policies could dampen export demand and weigh on activity, the International Monetary Fund said in a report released Friday.
Asia’s growth in early 2025 was supported by strong exports—boosted by frontloading ahead of expected tariff hikes—and a resurgent technology cycle, while accommodative domestic policies and loose global financial conditions sustained consumer demand. Still, the IMF projects regional GDP growth to ease to 4.5% in 2025, slightly below 2024’s 4.6%, and further slow to 4.1% in 2026.
“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. The report added that tighter financial conditions, whether domestic or global, could amplify trade shocks and compound economic vulnerabilities, potentially fueling social tensions.
The IMF urged policymakers across the region, which accounted for roughly 60% of global expansion last year, to bolster domestic demand—particularly consumption—and enhance productivity growth. In the near term, the fund recommended targeted fiscal and monetary stimulus to soften the impact of trade shocks.
It also called for structural reforms to strengthen the services sector, reduce incentives for capital misallocation, and mitigate the effects of aging populations to support medium-term growth and economic rebalancing.
Asia’s economic outlook is further complicated by social unrest. The IMF highlighted rising youth unemployment and dissatisfaction with political leadership, which have triggered mass demonstrations in countries including the Philippines, Indonesia, and East Timor. Populist protests fueled by inequality and corruption have already toppled administrations in Nepal and Bangladesh.
These social strains are reflected in slower growth, with the current decade’s pace about 1.8 percentage points lower than the 2010s, according to the fund.
On a brighter note, the report cited a potential boost from AI-driven investment, which could enhance exports, productivity, and investment more than expected. Reduced geopolitical tensions and additional policy support could further mitigate risks and help maintain growth momentum in the region.
