Transcript

Transcript of Press Briefing: Asia and Pacific Department Regional Economic Outlook October 24

October 24, 2024

Participants:

• Krishna Srinivasan, Director of the Asia and Pacific Department, IMF
• Thomas Helbling, Deputy Director, Asia and Pacific Department, IMF
• Randa Elnagar, Senior Communications Officer, IMF

MS. ELNAGAR: Good morning and welcome to our attendees here in the room and those joining us online and virtually. This is the Press Briefing on the Regional Economic Outlook for the Asia Pacific Department. I am Randa Elnagar of the IMF's Communications Department. Joining me today is Krishna Srinivasan, Director of the Asia Pacific Department, and Thomas Helbling, Deputy Director of the Asia Pacific Department. To kickstart our briefing, Krishna is going to give some opening remarks and then we're going to take your questions. Thank you. 

MS. SRINIVASAN: Thank you, Randa. Good morning to everyone here in Washington, D.C. Good evening to everyone in Asia. Welcome to our Press Briefing for Asia and the Pacific. Allow me to make a few opening remarks. 

Let me start with growth. In the first half of this year, Asia's economies grew stronger than we had expected. As a result, we have upgraded our regional forecast to 4.6 percent in 2024 and to 4.4 percent in 2025. With this, Asia remains the world's engine of growth. It generates 60 percent of global growth, far more than its share in global GDP of about 40 percent. 

Going forward, we expect domestic demand to strengthen in advanced Asia as the impact of past monetary tightening fades. Growth in India and China would remain resilient, even though in both economies it would slow slightly in 2025. For emerging markets outside China and India, we expect robust and broad based growth. 

Inflation. Asia has also brought inflation down to low and stable rates faster than other regions. In Emerging Asia, the disinflation process is essentially complete. There are a few exceptions in advanced Asia, notably Australia and New Zealand, where wage pressures have kept services inflation elevated. But we expect these pressures to fade as well within the next 12 months or so. 

This means that most Asian central banks now have room to cut interest rates earlier in the year. Some central banks may have been reluctant to ease before the Federal Reserve, fearing that this could put their currencies under pressure. But as the Fed has now started its own easing cycle, such concerns should have dissipated.

Let me add a little bit more detail on the China outlook. As you can see on the left hand side, activity has decelerated since the first quarter. As a result, we have marked down growth to 4.8 percent in 2024 compared to 5 percent in our July WEO update. In particular, the property sector has continued to deteriorate and weigh on investment, while private consumption has also weakened amid low consumer confidence. This forecast incorporates the monetary and financial sector policies that were announced in September. 

Weak Chinese demand is triggering into continued disinflationary pressures as shown on the right-hand side core inflation fell to 0.1 percent year-on-year in September. Several developments have taken place since we finalized our China forecast. Q3 data came out marginally weaker than we expected. At the same time, the authorities announced additional fiscal and housing measures which could provide some upside potential to our growth projection, especially in 2025 when the policy measures are likely to take effect. 

The external environment remains tough. Going back to the broader region, the environment in which Asian policymakers act has become tougher. Risks to the outlook are now tilted to the downside. For example, there are tentative signs that global demand could weaken, including from the United States, which would be bad news for an export dependent region like Asia. China's domestic demand weakness also continues to weigh on the wider region. 

Moreover, countries across the globe continue to implement trade restrictions at a rapid pace. We see already how trade flows are adjusting: China, for example, exports relatively more to emerging markets and less to advanced economies than five years ago. The ASEAN economies export more to China and the U.S. as trade targeted by U.S. and Chinese startups get channeled through third countries. In economic terms, this is a costly detour. As we stressed before, no one really wins from trade fragmentation. We all pay for this with slower global growth. And Asia has more to lose than others given its tight integration into global supply chains. 

Now, how should Asian policymakers navigate this environment? I talked already about monetary policy where welcome policy space has emerged. Unfortunately, the same is not true for fiscal policy. Public debt increased sharply during the Pandemic in Pacific Island countries. Debt ratios almost doubled, but debt has hardly come down since then. This drives up debt service costs and leaves governments with little spending power to address unforeseen events. 

In some economies, weak private demand may justify somewhat larger fiscal deficits in the near-term. Again, the emphasis is on the near-term. But for most Asian countries, it's time to start budget reconsolidation in earnest, both to build buffers against downside risks and to preserve spending power for addressing longer term challenges such as climate change and population aging. 

Let me spend a few words on another long-term issue, structural transformation and the future of Asian growth. Asia's traditional development model has been based on moving workers from agriculture into manufacturing and on selling the manufactured goods in the global market. The success has been spectacular. It unleashed the maybe greatest development success in story of human history. In recent decades, Asian economies have shifted more into services rather than manufacturing, however. This has been good for growth as modern services are often more productive than manufacturing. This trend is likely to continue as many Asian economies have reached income levels where the demand for manufactured goods typically declines and the demand for services tends to increase. 

Moreover, digital technology is making some services, such as business and finance, tradable in global markets. A global market for services holds large growth opportunities, but harvesting them will require reforms. In particular, education and training will be important. It will need to equip workers with the skills to provide modern services. And Asia should open up its services sectors to trade and investment. They remain relatively closed now, different from manufacturing. 

Finally, let me note, we will publish the Regional Economic Outlook November 1 in Tokyo, together with an analytical piece about the future of Asia's growth model. 

With this, Thomas and I will be happy to take your questions. Thank you. 

MS. ELNAGAR: Thank you, Krishna. Please raise your hand and identify yourself and your news organization. 

QUESTIONER: Thank you, Randa, for taking my question. I'm Maoling Xiong with Xinhua News Agency. So, Krishna, I talked about fragmentation in your opening remarks. I wonder whether you could elaborate a little bit on the economic impact of economic fragmentation on Asia, especially it's so integrated into the global system. Thank you. 

MS. SRINIVASAN: Thank you for the question, Maoling. As you know, there is evidence that global supply chains have been rewiring in recent years. Now this goes for the time before the Pandemic and into the context of U.S. China trade tensions. Now we have done some work in our Regional Economic Outlook which is forthcoming, which looks at the impact of the trade tension between U.S and China on Asian economies. 

What we find is that many Asian economies, notably those in the ASEAN, have increased their market shares of both Chinese and U.S. imports in both gross and value added terms, in what we call as connected countries. Now we also find that these third-party Asian countries, exports of targeted goods, of the goods which are targeted for tariffs by U.S. and China, they've also increased. And what we find particularly the case is for some countries like Thailand, Korea and Singapore, these effects are particularly strong. In other words, the sectors which are targeted by tariffs have seen ASEAN countries exporting more. 

Now again, I was talking about the targeted sectors. If you look at the aggregate growth, aggregate export growth, the question is whether these increase in targeted exports show up in the aggregate exports. And there the picture is mixed. Some countries have done better. For instance, Vietnam has done better both in terms of targeted exports and aggregate exports. 

But the point I'd like to leave with you here is in the short run we see these trade patterns changing. The question, of course, is whether this is temporary, whether it's permanent. It's only time will tell. But our analysis, you know, has shown that in the long run everyone hurts from trade fragmentation, from fragmentation and that's because global demand comes down. When global demand comes on, everyone hurts. So this is the message I would like to leave with that there have been shifting trade patterns because of fragmentation. But the point here is over the long run, everybody will lose. And so we all have to collectively fight against these forces of fragmentation. 

MS. ELNAGAR: Thank you, Krishna. Lady in the pink jacket.

QUESTIONER: Hi, my name is Ray Zho, financial journalist at 21st Century Rui Zhou,China. So I have two questions. First is about Asia Pacific. The IMF report has indicated a somewhat positive growth outlook for Asia Pacific region, especially in emerging markets compared to other regions. So can you elaborate on the key factors contributing to this relative strength? And the second question is about China. So China's recent economic stimulus measures could create potential opportunities for stronger growth in the future. So can you elaborate on these measures and the potential long-term benefits for China's economic structure? Thank you. 

MS. ELNAGAR: Thank you. Do we have any other questions on China? Okay, the lady here. 

QUESTIONER: Thank you. My name is Xu Tao from China Central Television, and I have two questions. The first is how do you evaluate China's role in the development of the world economy? And the second is about the trade tension between the U.S. and China. As you mentioned, the trade and the trade tension between U.S. and China will affect the Asian growth. So if more traverse, if more tariffs are imposed on the Chinas by an incoming U.S. administration, how will that affect Asian growth? Thank you. 

MS. ELNAGAR: One more on China. The gentleman. 

QUESTIONER: Hi, good morning. My question is for Krishna. Thank you so much. You said in your presentation that the growth in India and China will slow down in 2025. Can you please elaborate reasons as to why the growth will slow down. And also about the South Asian countries, the growth in like Nepal, Bangladesh, if you could elaborate as that as well. Thank you. 

MS. SRINIVASAN: Okay, thank you for those questions on China. So let me – let me start by saying that we have revised on our growth forecast for China for 2024 to 4.8 percent, and that is coming down from 5 percent we had in the Article IV Consultations and during the July WEO update.

The question is why have we revised down? Now if you look at growth in China, domestic demand has been very weak since the first quarter. So numbers coming out from China since Q1 have been pretty weak. Now that is offset somewhat by the measures announced in September, the monetary and financial measures. Again, we have to break up these measures into two sets. One is the monetary and financial sector policies, which were announced in September, and the fiscal policy measures, which were announced in October. So the first set of measures were already internalized in our baseline forecast. And that -- so you had Q1, activity since Q1 being very weak, offset by some support measures. So we mark it down to 4.8 percent. Now support since then could provide some upside potential. 

The question you asked also is: how do we see the impact of these measures now? Most of these measures, which were announced in September on the monetary and financial sector side, were consistent with what we had elaborated on in our Article IV reports in July. So we welcome those measures. And on the fiscal measures, we're still awaiting further details, including how big it is, how – how will it retarget? We know the broad areas of targeting. They're trying to reduce the debt for local governments and trying to alleviate the problems in the property sector. But we still don't know all the details.

Now, going beyond this, what are we saying is that to address the – the issue of weak domestic demand and to put the economy back on a more sustainable trajectory, there needs to be -- more needs to be done to help rehabilitate the property sector. And we provided these numbers estimates. We think central government support both to, you know, finish these pre-sold housing is important. It's important to resolve the unviable developers. So all that will take some fiscal costs. And we are very clear that in the near-term China could use some of the fiscal resources to address the problem in the property sector. But beyond the near-term, over the medium term, given rising debt levels, China will need to embark on consolidation.

We also talk about refocusing expenditures to boost social safety nets and do pension reform, which will allow China to save more going forward. So right now China saves a lot. So if you have these measures addressing Social Security and pensions, that will allow Chinese to save less, and that will also provide a boost to domestic demand, rebalance the economy, and also lead to lower imbalances going forward.

Now there are other questions on why Asia is doing better. Emerging markets in Asia doing well. See, in Asia you had a huge labor force, which is more -- which is cheaper than other parts of the world. Productivity has been high in many parts of Asia, and this is a region which is really integrated well into global supply chains and the global economy, and so on. So that lends inherent dynamism to the region, and that we expect to continue going forward. However, you do see some problems going forward in terms of populations aging in some parts of the world, some parts of Asia, notably in China, Korea. It's already happening in Japan and so on. So you have population aging, you have AI coming into play, you have climate change. All these are factors which could affect, you know, prospects going forward. But that's where you need reforms which address these challenges going forward.

Now, there were some questions on –

MS. ELNAGAR: We can stick to China now and then go to other questions.

MS. SRINIVASAN: We'll come back to other questions. So those are the questions. Response on China. 

MS. ELNAGAR: Okay, next. Okay, we go to this side. Gentleman.

QUESTIONER: thank you very much. Thank you very much, Randa. Shu Tataoka from JiJi Press. I have a question on Japanese economy. In the latest WEO, you have revised up the BOJ neutral rate to 1.5 percent. And what is the implication of such drastically revised up, especially given Japanese high debt level? And another question is on Japanese yen. Japanese yen has depreciated recently again. And what is your view on that – that development? Can you describe it as excessive movement which we should pay attention? Thank you. 

MS. ELNAGAR: Any other questions on Japan? 

MS. SRINIVASAN: Okay. Thank you for the question. Let me, you have -- you have a number of questions. One question -- so let me answer one by one. We welcomed the Bank of Japan's decision to increase the policy rate in July, which will help anchor inflation and inflation expectations at around the 2 percent target. Now, given balanced risks of inflation, further hikes in policy rates should proceed at a gradual pace. Now, nominal neutral rate estimates for Japan range from 1 to 2 percent based on different methodologies and we now expect the policy rate to reach 1.5 percent in 2027. 

Now, in terms of what does – what do rising interest rates in Japan mean for the rest of the world? Now, from a very global perspective, an increase in interest rates in Japan could have output spillovers to other sovereign debt markets where Japanese investors hold large positions. But that said, so far we've seen these growth spillovers to be pretty muted because the BOJ decisions have been well communicated and they've been very gradual. So it's been -- markets have been given the time to both internalize these changes and what comes next. So in that sense, the spillovers have been limited. 

Now you ask the question what does also mean for the rest of the world? I think rising interest rates gives support. Gives, I mean, it's in line with, you know, improving prospects in Japan. Though when Japan's economy grows, it's good for both the region and – and for the global economy. 

Now, in terms of the exchange rate. The Japanese authorities are fully committed to a flexible exchange rate regime. So we've seen exchange rate depreciation and appreciation over the past one year. So it's been pretty flexible. Now that said, the yen has been used as a funding currency for carry trade. And that means that over the past year or so, sometimes the changes in the yen can be magnified because of the unwinding of carry trade. And we saw that on August 5th, not just because of what happened in terms of the BOJ increasing rates, but also because in response to how the labor market of this came out, the reaction was magnified because of the unwinding of carry trade. So that's been an issue. But other than that, what we feel are the authorities are fully committed to the flexible exchange rate regime. Thank you. 

MS. ELNAGAR: Thank you, Krishna. Can we move to the India question? And then I have another India question that came in online from Informist Media, Siddharth Upasani. The IMF sees India growth declining to 6.5 percent in FY26. This is lower than Reserve Bank of India forecast 7 percent. The RBI, in fact, is far more bullish about India's growth in general, with Deputy Governor Michael Patra saying in New York on Monday that there is a strong possibility of India's GDP growth returning to an 8 percent trend after FY26. Does the IMF share this view? If not, do you think Indian authorities are being overly optimistic?

Any other questions on India or you ready to discuss?

MS. SRINIVASAN: Yeah, thank you for those two questions. I'll have my colleague Thomas answer the question. 

MR. HELBLING: On India. So on India and on growth, I think it's important with the general point, we see India as the strongest growing major emerging market economy this year, but also in the coming years. Point number one. Point number two, this year we have revised up growth for the current fiscal year in year 7 percent, reflecting stronger -- the expectation of stronger private consumption after a favorable monsoon season that will strengthen in particular rural demand. 

In terms of the growth trajectory, India had 8 percent last year. This year we project 7 and then to 6.5 percent. For us, it's a return back to potential after the Pandemic, after government's recent infrastructure push and after the rebound after some financial stresses. India has benefited from strong cyclical growth, and we now expect a return back to potential over the next two years, six and a half percent. I would note that potential growth for India had been revised upward last year, and there is scope for even higher potential with adequate more structural reforms. Our India team has noted in particular labor market reforms, some fiscal reforms, and maybe an increased infrastructure push, and also if there were reforms to education and skilling the labor force. So there is scope for even higher growth. But at the moment we see policies consistent or our current policies, we see six and a half percent potential growth which is high. 

MS. SRINIVASAN: If I could just add, you know, we have in the REO chapter we have an analytical note on structural transformation where countries will move towards more services led growth. I think in that context there's a lot of potential for India to benefit from that kind of growth. However, to benefit from that kind of growth, significant amount of investment has to take place in education and scaling of labor which as Thomas mentioned. So we want to look at that note when it comes out next week. 

MS. ELNAGAR: Thank you. I think he also asked about Nepal so we can move because we have I think a Webex question on Nepal. So Sharad, if you can please put on your screen camera and turn on the audio. Sharad? 

QUESTIONER: Good afternoon. Sorry, good evening. Am I audible? 

MS. ELNAGAR: We can hear you. Yes. 

QUESTIONER: Okay, I will ask two questions. One, IMF, has sent Nepal's county rep between ECF agreement, why did the Fund send country representatives in between the agreements? And second, some individuals argue that Nepal have not carried out required fiscal and monetary reform as promised under ECF. How do you access Nepal's progress regarding ECF commitments? Thank you. 

MS. ELNAGAR: Thank you. 

MR. HELBLING: On Nepal, we have regular changes in our staff, as you know, we have staff mobility, regular changes in assignments. So we have a transition in resident representatives as we also have in other countries. Point number two on the ECF. Nepal has an ECF. The arrangement started in 2022. So far we have completed four reviews under the program. Discussions for the fifth review are underway. There was a change in government in August, so the discussions are continuing with the new government. And as to my knowledge, performance on the quantitative performance criteria is strong. There is some discussion ongoing about whether some requirements on the structural benchmarks have been met and or whether there need be a recalibration of some of the structural benchmarks. These are ongoing discussions, and the Nepal team will soon go back into the field. 

MS. ELNAGAR: Thank you, Thomas. Questions from the room. The lady in the third row. 

QUESTIONER: Hello, my name is Sanghoon Lee. I'm from the Korea Economic Daily newspaper. I got a question for Krishna Srinivasan. Since after the United States presidential election, it is likely the economics conflict between the United States and China will escalate even further. So I believe this kind of a situation is highly likely to constrain the economic growth of countries like South Korea. So my question is, I'm curious to what extent this scenario is reflected to your outlook. And also, I would like to hear how much impact do you expect it to have on Korea's economic growth afterwards. Thank you. 

MS. SRINIVASAN: Thank you. You asked me that question, but Thomas could answer. 

QUESTIONER: Yeah. And I will add one more question that came online from Korea from Ahn Taeho, Hankyoreh. She said, could you provide a brief evaluation of the current state and outlook of South Korean economy. Specifically, while exports seem to be recovering, domestic demand remains sluggish. What does the IMF see the main reasons behind the weak domestic consumption and what is the forecast for its recovery? 

MR. HELBLING: So, for Korea, our forecast for this year is 2.5 percent and then growth will slow towards potential to 2 percent next year. As you mentioned, growth in first half of this year was stronger than expected. Very strong growth. In particular on the external side, domestic demand was weaker than in the external sector or the export sector. This weakness in domestic demand reflected in particular the loss or the erosion of purchasing power. With the rise, the surge inflation globally and then the monetary policy tightening which affected domestic demand in particular through the relatively high private debt burden, increasing debt service payments. This situation is about to change. As the Bank of Korea has started the monetary policy easing cycle, inflation has declined. So, with the similar nominal compensation and income increases, real purchasing power will increase, and we expect domestic demand to strengthen. 

Indeed, in the Q3 release that was just released last night, Washington time, domestic demand in Korea has strengthened in Q3 as expected. As for trade tensions, these are not -- our baseline does not incorporate a further increase in trade tensions. As noted in the release of the World Economic Outlook and as also noted or will be noted down in our Regional Economic Outlook, an increase in trade tensions is a major downside risk. Korea is very strongly integrated in global supply chains into global markets and exposed, strongly exposed both to China and the United States. 

So as previous regional economics outlooks have highlighted, Korea will be relatively more affected negatively if there were a further increase in the trade tensions between the United States and China. I cannot say much more because if there were an increase in trade tensions, much would depend on details on measures, the extent of the increase in tensions so far. And so there's no point in going further at this point. Thank you. 

MS. ELNAGAR: Thank you. We can take question from the gentleman. 

QUESTIONER: Hi. Thank you for the opportunity, I’m with Idika from Economy Next from Sri Lanka. I have two questions. Now that the debt restructuring process is largely completed, what are the key fiscal or structural benchmark does Sri Lanka need to meet in order to unlock the fourth transfer of funding? And how does the recent change in government impact the timeline or the likelihood of achieving these targets? 

The second question is that there are talks that the new government is sort of contemplating dropping the imputed rental tax that is supposed to come next year. Has this been discussed with the IMF so far? Also, what's IMF position on Sri Lanka continuing with the vehicle suspension? 

MS. ELNAGAR: Any other question on Sri Lanka? 

QUESTIONER: Hi, thank you for taking my question. My name is Magnus Sherman, I'm with Reorg. I wanted to touch on the Sri Lanka's debt restructuring. We heard the Managing Director just an hour ago say that it's important to help countries back on their feet as quickly as possible. The Macro link bonds Sri Lanka has this mechanism where the better they perform, the more debt they effectively have to pay back. So you could argue that does the exact opposite. What's the IMF's position on this? Is that something you would recommend future restructurings to include as well? I know it's very popular among creditors, but it could backfire. 

MS. ELNAGAR: Thank you. I think we have a Webex question on Sri Lanka too. Zuflik, if you can please put on your camera. Here we go. We cannot hear you. 

QUESTIONER: This is from News First Sri Lanka. My question is to Mr. Srinivasan. Sri Lanka is currently on a IMF supported program for 48 months. Is IMF having any long-term support program for Sri Lanka given that the debt restructuring is also in its final stages? And just 48 hours ago at the G24 press briefing, we had the director of G24 saying that countries like Sri Lanka, the middle-income countries, should also have something similar to a common framework and there should be timely debt reduction measures also in place. What is the IMF's position on these two aspects? Thank you. 

MS. ELNAGAR: Any other questions on Sri Lanka? We have a few similar questions that came through the media center. So we're going to answer them if we can please. Krishna and Thomas. Thank you. So there is a question from Ceylon Newspaper. How is the progress of Sri Lanka's program and when is the third review expected? So it's similar to what was asked. What are the expected dates of releasing the next change? How can Sri Lanka address post debt restructuring challenges, particularly within loan interest payments starting next year? 

There is also the Daily Mirror. He's asking has the change in the presidency and the likelihood of change of government at the upcoming parliament polls has an impact on the agreement already reached between Sri Lanka and the IMF. Has there been any move by the new Sri Lankan administration to renegotiate the agreement reached between Sri Lanka and the IMF? There is also similar questions from Hero News and from -- that's it. 

MS. SRINIVASAN: Thank you. Quite a few questions. Let me try to answer all of them. So when the new government took office not too long ago, I led a high level team to Colombo to discuss the to engage with the authorities. And we had some very, very productive discussions with the new government and the team there. And the discussions are continuing this week during the Annual Meetings. Now, there was broad consensus, I would say unanimous consensus, that Sri Lanka, which was tearing at the abyss in 2022, has come a long way in terms of undertaking reforms which have led to some hard won gains, as you can know. You'll note that growth has been positive the last four quarters. Inflation is coming down. So there is consensus that the new government, you know from the new government that it would like to safeguard and build on the hard won gains under the program. 

Now, under the program we have elements which address some of the priorities of the new government, including in terms of social protection and so on. But the details on the program are continuing and they'll be happening this week in Washington. And we are encouraged by what we have heard so far and hoping that, you know, we can move fast towards the third review which will come up soon. Now, in terms of there was a question on the debt restructuring. They have reached agreements with the official creditors, and they've reached an agreement in principle with the private creditors. The next step would be to reach a formal agreement with all creditors. And that's a big step forward. And of course that's not the end. There's a lot more work to be done in terms of continuing with the reforms because a long way to go before you're on the path of strong and sustainable recovery. 

In terms of the macro linked bonds, this is something which is a negotiation between the country's creditors, the country's advisors and the creditors. We don't get involved in the kind of instruments that they negotiate on and so on and so forth. What we are concerned about is whether these instruments and the restructuring they reach are one consistent with our program targets on debt and so on, and that there's comparability of treatment across creditors. So that's something which the country works on. Now you're right that these macro linked bonds have become popular. And so, you know, it all depends, country to country, how the creditors and advisors go about it. So it's not for me to say that this is going to be the future of all debt restructuring. It varies from country to country. We've seen plain vanilla bonds being exchanged and you have these kind of bonds in other countries. 

Now there was one question on specific tax measures there. I mean that I don't want to go to the detail because those are things being worked out in the context of discussions which are ongoing right now. Hopefully, you know, we'll move along these negotiations over the next few weeks in a more targeted way. Thank you. 

MS. ELNAGAR: Thank you. I know that there is someone online, but let's have the lady here. 

QUESTIONER: Given that you -- I'm Natha Goonawarra from the Standard Thailand. Given that you mentioned a lot about trade fragmentation and trade tension, especially between the US and China, and I'm from Thailand and Southeast Asia. So what is your recommendation or your insight on how Southeast Asia and Thailand navigate this global economic challenge this year and what are the most influential factor in the coming years? 

MS. SRINIVASAN: Thank you. I'll have Thomas answer that question. 

MR. HELBLING: So, the ASEAN countries like Thailand are very strongly integrated into the global economy. Rising trade integration has been an important engine for growth in the region. So what we have seen so far, as Krishna mentioned earlier, there's two developments. One is the global picture of increasing trade tensions and increasing trade fragmentation. In a sense, it's a strong negative for the global economy as a whole. Global growth will be relatively lower compared to a situation with no or fewer tensions. Real incomes and productivity will be lower. On the ASEAN side, a number of countries, including Thailand, have had some trade diversion benefits. It's also true for Vietnam for example, or Malaysia. So that is some benefits. But our view has been that on net it's still a negative also for the countries in the ASEAN. 

So therefore we think the countries in the ASEAN should make a strong push for a continued, strong multilateral trading system for further trade integration. We also see scope for further regional trade integration. Obstacles to trade are still relatively higher in services. There's scope there to move forward. Third, on other policies, we see scope for horizontal structural reforms to prepare the economies for a changing trade landscape, for a trendless landscape where services will be relatively more important. Krishna also mentioned already the importance of education and upskilling the labor force to prepare them for changes. And then thirdly, maintaining macroeconomic stability. In particular also having a flexible exchange rate regime that serves as a buffer to external shocks will be important. 

MS. ELNAGAR: Thank you. Thank you, Thomas. We're going to go online again because we have the gentleman. Saiful, can you please put on your camera? I have his question, but I think he cannot connect. He's asking about Bangladesh. The IMF has lowered down GDP growth projection for Bangladesh to 4.5 percent for FY25 from April projections of 6.6 percent. What are the reasons behind the downgrading? Does the IMF have any plan to grant additional 3 billion budget support as sought by the interim government of Bangladesh? Any other questions on Bangladesh? 

MS. SRINIVASAN: Thank you. Again. The reason for our revising down our growth forecast is in response to what we saw in the events in the recent past. So things have slowed down compared to what we saw previously in the April forecast. And so those developments give us a pause in terms of what's happened to growth. There was a mission led by our mission chief, Chris Papadakis to Bangladesh, which looked at all aspects of what's happening to the economy. Based on that, we revised on a growth forecast. In the case of Bangladesh, growth has slowed, inflation remains high, and they were making good progress. Bangladesh was making good progress under the program. So discussions are ongoing in terms of the next review. We had discussions in Bangladesh, in Dhaka, and discussions are continuing in Washington on how to move forward in terms of financing. All those will be part of the discussion which will take place this week and next. Thank you. 

MS. ELNAGAR: Thank you. We have another online question from CNN Indonesia. What is Indonesia's projected economic growth for the coming year and what are the key global risks that Indonesia should anticipate in 2025 to maintain its resilience amid shifting global economic dynamics? The second question is how are sustainability challenges and climate risks expected to shape the Asia Pacific regions economic performance in 2025? And what role will climate finance play in helping governments and businesses mitigate these risks while driving sustainable and long term growth? 

MR. HELBLING: On Indonesia. Indonesia has enjoyed and is projected to continue enjoy strong robust growth around 5 percent. In terms of specific numbers, just for this year we have 5 percent and for next year we have 5.1 percent. In terms of risks, the external risk ask. I think they're very similar for Indonesia as they are for other countries in the Asia Pacific region. An important concern is trade fragmentation or increasing trade fragmentation. What's perhaps a bit different for Indonesia is this will play out relatively more through commodity market channels than just through manufacturing channels as elsewhere. But trade fragmentation is a big risk. And as for other emerging market regions in the Asia Pacific or elsewhere, possible shifts in monetary policy expectations, increased financial market volatility also pose some downside risks. 

MS. ELNAGAR: Thank you. We have one last question online on the Pacific Islands Pacific region. It's by Ben Westcott from Bloomberg. Given the increasing economic pressures and climate challenges facing Pacific Islands, Pacific Island nations, how does the IMF assess the current trajectory of debt burdens in the region? Are these debts shrinking or growing? And what factors are contributing to this trend? 

MS. SRINIVASAN: Thank you, Randa. Now, with the deterioration of fiscal balances during the pandemic, public debt did increase on average in the Pacific island countries. In most countries, however, it has now stabilized or is falling relative to the size of the economies. Now, that said, seven out of 12 countries in the Pacific islands are considered to be at high risk of debt distress and only about 5 are considered to be at moderate risk of debt distress. So this goes to the issue of the fact that there needs to be growth friendly fiscal consolidation to bring down debt in these countries. Of course, these countries also face a challenge of the risks associated with climate change and so there is pressure on them to borrow to address these challenges. But again, we would emphasize that given where they are with their debt levels and so on, it's prudent, it's very important for them to access concessional financing or even grants to make sure that when they address these longer term challenges that they do that in a prudent way so that debt doesn't become too much, doesn't become more onerous than it is right now. 

Now, on the issue of debt, this is not just limited to Pacific Island countries. What we have seen is since the global financial crisis, public debt has been rising across most countries in Asia. And so the issue of growth friendly consolidation is very important. And like I said in my opening remarks, consolidation, fiscal consolidation needs to begin in earnest in many of these countries. For some countries there could be, there may be a need to provide some support in the near term. But beyond that, all countries in Asia need to embark on fiscal consolidation, which is growth friendly. 

MS. ELNAGAR: Thank you very much. Thank you Krishna and Thomas for giving us the time and answering all the questions. And we come now to the end of our press briefing. I just want to remind everyone that you can find all the briefing material and the transcript on IMF.org. I would also like to remind you that the full release of the Regional Economic Outlook of the Asia Pacific Department is going to be released in Tokyo on November 1st, as Krishna mentioned in his opening remarks. So we look forward to seeing you online or in person there. I also would like to remind you that we have regional briefings today in this room for MCD just after this and then after that for the European Department. Thank you very much and have a wonderful day.