(Bloomberg) -- The International Monetary Fund boosted its growth forecast for Asia this year, reflecting a rosier outlook for the region's two largest economies and flagging a possible upward revision in its outlook for China.
Asia is set to expand 4.5% in 2024 from the prior year, 0.3 percentage points higher than the October regional outlook but a slowdown from last year's 5% pace, according to the IMF report on Tuesday.
The latest data has taken into account the higher forecast for India published earlier this month and China's pace, on the back of expectations that government stimulus will boost growth. On China, the IMF said first-quarter growth came in stronger than expected on robust exports and manufacturing demand, which may prompt another upward revision.
“Global disinflation and the prospect of lower central bank interest rates have made a soft landing more likely, hence risks to the near-term outlook are now broadly balanced,” Krishna Srinivasan, director of IMF's Asia and Pacific department, wrote in a blog post.
China's central government has ramped up spending this year to support an economy still reeling from a weakened property sector and to propel growth to its target near 5% this year. In India, the government ramped up capital spending by a third for 2024, the third year in a row.
China's real gross domestic product is seen expanding 4.6% in 2024 from the prior year, and India to rise 6.8% this year, the IMF said. Officials left the 2025 regional outlook unchanged at a 4.3% advance.
Several risks remain, the IMF said. Chief among them is a long-term property sector downturn in China, which would weaken demand and prolong deflation. Other challenges include growing fiscal deficits and risks to trade from US-China tensions.
Officials also warned Asian nations of pinning too much on expectations for the Federal Reserve's path when deciding their own monetary policy. Indonesia this month unexpectedly raised interest rates to address a currency walloped by a strengthening US dollar. Southeast Asia's largest economy is among many countries in the region contending with currency depreciation as the prospects of early Fed rate cuts wane.
While following the Fed “could limit exchange rate volatility” but “it risks that central banks would fall behind (or move ahead of) the curve and destabilize inflation expectations,” Srinivasan wrote.
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