Asia-Pacific growth forecasted at 4.5% in 2025, leading global economy: IMF outlook

International Monetary Fund’s headquarters in Washington, D.C. (Photo by Mak on Unsplash)

The Asia-Pacific region is expected to remain the world’s economic growth engine in 2025, with the International Monetary Fund (IMF) projecting a regional GDP growth rate of 4.5 percent, according to its latest Regional Economic Outlook for Asia and the Pacific.

Despite strong momentum in the first half of the year, Asia’s GDP growth is projected to be moderate in the second half of the year, resulting in an annual growth of 4.5 percent in 2025, slightly lower than the 4.6 percent recorded in 2024.

“Economies in the Asia-Pacific region have shown resilience amid external and domestic challenges so far in 2025, posting stronger-than-expected economic growth in the first half of the year,” the IMF report stated.

The report explained that this performance was driven largely by robust exports, supported by frontloading ahead of anticipated U.S. tariff increases, and a buoyant technology sector. Monetary and fiscal policy easing also helped sustain domestic demand across the region, aided by globally accommodative financial conditions and a weaker U.S. dollar.

Asia’s economies have proved unexpectedly resilient amid trade tensions (Source: IMF)

Nevertheless, the IMF warns that “higher U.S. tariffs and increasing protectionism will likely reduce demand for Asian exports and eventually weigh on growth in the near term.”

The fund projects growth will slow to 4.1 percent in 2026 as the negative effects of trade tensions accumulate. While tariffs implemented so far are lower than initially announced in April 2025 and tentative new trade agreements have emerged, “trade policy uncertainty remains high and could weigh on investment and sentiment more than expected.”

The regional outlook also faces internal pressures. Many countries are struggling with sluggish domestic demand, particularly in consumption, which remains below pre-pandemic trends.

The IMF highlights that “persistent weaknesses in the service sector, property sector downturns, and sluggish consumer sentiment have contributed to a soft post-pandemic recovery in jobs and income growth, dampening consumption.” Limited fiscal space due to high debt burdens, inadequate social safety nets, and inefficiencies in financial systems have further constrained broad-based domestic recovery.

Increased intraregional trade has helped to offset a drop in China’s exports to the US (Source: IMF)

To counter these challenges, the IMF calls for comprehensive reforms aimed at making growth more resilient and sustainable. “Structural reforms are essential for enhancing medium-term growth potential and rebalancing the economies,” the report said.

Key reform areas include boosting domestic demand, particularly consumption; supporting the services sector; improving financial system efficiency; reducing capital misallocation; and addressing the economic impact of population aging.

The IMF also underscores the potential of technological advancement, noting that “the current AI-driven investment boom could deliver a stronger-than-expected boost to exports, investment, and productivity in the region.”

However, it cautions that capitalizing on these opportunities will require monitoring emerging developments and refining regulatory frameworks as needed.

The fund further recommends that policy responses combine short-term and long-term strategies.

“In the near term, targeted fiscal and monetary policy should be used to smooth the impact of trade shocks and provide temporary support,” the outlook said. Concurrently, upgrading policy tools and implementing fiscal reforms are necessary to manage spending pressures and prepare for future shocks.

Regarding geopolitical risks, the IMF observes that “a reduction in geopolitical tensions would help reduce uncertainties and lift investment and productivity,” signaling that easing regional and global conflicts could play a significant role in sustaining growth.