Despite mounting external shocks and persistent structural challenges, the Asia-Pacific region is regaining momentum, with growth projections outpacing expectations. Speaking at the 2025 International Monetary Fund (IMF) Annual Meeting, Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, opened with a message of cautious optimism.
“Economic activity in the Asia Pacific is holding up better than expected in April, despite the region bearing the brunt of U.S. tariffs and policy uncertainty remaining high. We project the region to grow by 4.5% in 2025, and moderately to 4.1% in 2026. Inflation is expected to remain muted in most countries. The region is once again set to contribute the lion's share of global growth: about 60% both this year and in 2026,” predicted Srinivasan.
Resilience has been underpinned by a combination of external and domestic drivers: robust export activity, a surge in technology-related trade, and accommodative macro policies reinforced by feeble financial conditions. After months of uncertainty tied to tariff escalations, the region has shown a capacity to adapt through shifting trade patterns and targeted policy responses. This mix of steady external demand and flexible economic management has given Asia a firmer footing than many had anticipated.
“Exports were supported by firms frontloading shipments ahead of the tariff hikes. And tariffs themselves while still higher than the beginning of the year, are lower than what we expected back in April. Export strength was also driven by a surge in traditional trade, while the AI-driven tech boom also lifted high-tech exports, especially from Korea and Japan. Buoyant activity has been supported by an easing of either monetary or fiscal policy - or in some cases both - across many countries in the region. Booming equity markets, lower long-term borrowing costs, and a weak dollar have also helped,” explained Srinivasan.
Performance across major Asian economies has been solid but uneven. China’s growth has held firm despite tariffs, Japan’s domestic demand is picking up, India remains the fastest-growing major economy, and Korea is on track to rebound as political uncertainty eases. Collectively, regional growth is expected to hold at 4.3% for two consecutive years, supported by strong export momentum and targeted policy measures. However, Srinivasan cautioned that resilience does not erase deeper challenges.
“Asia has grown more slowly this decade than in the last. As most recent developments indicate, the dust on tariffs has not yet settled; they could still increase. Similarly, risk premia and interest rates could rise again, especially if trade policy uncertainty or geopolitical tensions intensify. And a tightening of financial conditions could further increase debt-related vulnerabilities and stifle growth,” warned Srinivasan.
Against these structural headwinds, countries are well advised to balance short-term stabilization with long-term reform. A durable growth path will require flexible monetary responses where inflation is easing, alongside targeted fiscal support to shield vulnerable sectors. Over the longer term, stronger safety nets, sound fiscal planning, and ambitious trade and investment reforms will be key to sustaining expansion.
“Our analysis in the forthcoming REO [Regional Economic Outlook report], to be launched in Hong Kong next week, shows a deeper regional integration could yield sizable gains. Countries can cut non-tariff barriers, broaden and modernize trade agreements to cover services and digital trade, and ease FDI restrictions. We also show in our REO that countries in Asia need to boost capital efficiency, making sure every dollar invested has strong returns. And this can be done with deeper bond and equity markets, broader market-based finance, and stronger insolvency at debt or frameworks, so capital flows to the most productive firms. And a much-needed cleanup or streamlining of regulations in countries across the region can help unleash the full potential of the private sector,” concluded Srinivasan.
