JAKARTA (TheInsiderStories) – Emerging economies in Asia are well placed to withstand a pressure stemming from a stronger dollar as it was not triggered by domestic factors, the IMF’s Asia Pacific director Changyong Rhee said on Wednesday.
Changyong Rhee also said IMF is not too worried about recent selling pressure on assets in Indonesia and the Philippines as it was not triggered by domestic factors and Asia. In addition, both countries also have stronger buffers than when facing similar pressures in the past.
The Indonesian rupiah has been under heavy pressures due to expectations of further monetary tightening in the USA, rising US treasury yields, concerns about the breakout of a global trade war, rising crude oil prices, as well as high local US dollar demand in the April-May dividend payout season.
Moreover, on Tuesday (08/05) the rupiah passed beyond the psychological level of Rp14,000 per US dollar, urging the central bank to to stabilize the rupiah in the midst of high uncertainty in global financial markets by spending foreign exchange reserves. From a record high of USD $131.9 billion in January 2018, Indonesia’s FX reserves have now declined USD $7 billion to USD $124.9 billion in April.
Meanwhile Philippines peso has fallen more than 4 percent against the dollar this year, the worst performance among Asian currencies.
Asia Continue to Grow
In its latest Regional Economic Outlook: Asia and Pacific (REO), IMF also expected Asia’s economy continues to grow in the near term, by growing at 5.6 percent this year and next, p 0.1 percentage point from its last update in October, accounting for more than 60 percent of global growth—three-quarters of which comes from China and India alone.
The outlook is supported by strong global demand, amid the risks of tightening of global financial conditions, population aging, slowing productivity, and the rise of digital economy.
China’s growth is expected to moderate to 6.6 percent in 2018 as financial, housing, and fiscal tightening measures take effect in the largest Asian country. Meanwhile, growth in Japan has been above potential for eight consecutive quarters and is expected to remain strong at 1.2 percent this year.
In particular, the Fund also projected ASEAN’s growth to stay at 5.3 percent both this year and next, reflecting strong investment and consumption across several countries.
But over the medium-term, Asia is vulnerable to a tightening of global financial conditions, spurred by higher U.S. interest rates, which could trigger capital outflows.
According to the report, inflation has become more backward-looking, meaning that past inflation drives current inflation more than future expectations.
Escalating geopolitical risks as well as natural disasters and cyberattacks could also negatively impact the region’s medium-term growth.
And over the longer term, Asia faces a number of important challenges from population aging, slowing productivity growth, and the digital revolution, which of course brings huge opportunities along with risks.