Asia More Exposed To US Trade Shocks Than Others, Says IMF's Krishna Srinivasan

(MENAFN- Live Mint) New Delhi: Asia's deepening integration into global trade networks has left the region especially vulnerable to recent trade policy shocks, particularly from the US-led reciprocal tariffs, Krishna Srinivasan, director of the Asia-Pacific department at the International Monetary Fund said on Thursday.

Speaking at a press briefing on the economic outlook for Asia and the Pacific on the sidelines of the IMF/World Bank Spring Meetings in Washington, Srinivasan noted that Asia was significantly more exposed and faced a greater potential shock than other regions.“Uncertainty has also increased materially, further worsening the near-term outlook for the region,” he added.

Commenting on India's recent performance, Srinivasan said growth in late 2024 was supported by a pickup in exports and consumption. However, the overall outcome was weaker than expected due to a slower-than-anticipated start to public investment following the elections and some temporary factors, he said, adding that private investments remained weak in emerging markets. "The recovery generally held up with a shift from consumption to investment," he added.

To be sure, IMF's World Economic Outlook (WEO), released on 22 April, cut India's growth forecast for the current fiscal year to 6.2% and slashed its global trade outlook as the US tariff war raised concerns worldwide.

In October the fund had predicted 6.5% growth for India, which it reiterated in January.

According to the IMF, Europe is projected to grow at a muted 0.8% in 2025, while growth in emerging markets and developing economies is seen easing to 3.7% in 2025 and 3.9% in 2026, with China among the hardest hit by recent trade measures.

Why Asia is particularly vulnerable

Meanwhile, Srinivasan outlined three key reasons why Asia was particularly exposed to recent trade policy shocks and rising uncertainty. He noted that many Asian economies were very open and heavily reliant on goods trade. Their relatively early reopening after the pandemic drive a strong initial recovery, he added, even as the region's tigher integration into global supply chains increased its exposure to shifts in US demand.

"Financial market downside risk and asset price volatility may further increase the capital flows and investment (in the region)," Srinivasan said.

"Policy tradeoffs are becoming sharper. Extreme flexibility will be a key buffer against shocks. But in case of heightened financial market volatility effects, intervention may come into play in some circumstances," he added.

Srinivasan said while there was scope for monetary easing to cushion the external shocks in many Asian countries, medium-term fiscal consolidation remained essential for them, and temporary and targeted fiscal support measures could become necessary to smooth the adjustment and boost demand.

"Bold and structural reforms are needed to reinvigorate productivity and promote growth, which is essential to improve resilience over the medium term," he said.

"The Asia region faces structural challenges, including increasing demographic challenges and productivity growth that has slowed and remains sluggish in recent years," he added.

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