IMF warns US fiscal uncertainty, China’s credit growth pose risk to Asia

Reuters: A lack of clarity about the size of an expected US fiscal stimulus and China’s rapid domestic credit growth are among risks that cloud Asia’s economic outlook, a senior International Monetary Fund official said on Monday.

IMF Deputy Managing Director Mitsuhiro Furusawa noted a faster-than-expected sequence of interest rate hikes by the U.S. Federal Reserve could trigger a “significant” dollar rise that would increase the debt burden of Asian emerging economies with large dollar-denominated borrowings.

“Asia continues to be the world leader in growth helped by stronger demand and accommodative policies,” Furusawa said in a speech at a seminar in Tokyo on the region’s fiscal policy and demographics.

“Nonetheless, the near-term outlook is clouded with significant uncertainties and risks,” such as a lack of clarity on US economic policy including the size and composition of President Donald Trump’s proposed fiscal stimulus.

“China’s rebalancing process continues, but growth remains reliant on rapid domestic credit growth that could cause problems down the road,” he said.

The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017. REUTERS

Furusawa called on Asian policymakers to adapt their fiscal policies to engage slowing population growth and rapid aging in the region.

Asia’s population growth is projected to fall to zero by 2050, with the ratio of the elderly to working-age population reaching 2-1/2 times its current level, he said.

Asian policymakers could tackle such demographic challenges through reforms to curb health care and pension system costs, providing tax incentives to raise labor force participation, and compiling credible medium-term fiscal plans to ensure debt sustainability, he said.

“Experience shows that it is important to adapt fiscal policies before aging sets in. This should occur at a gradual pace in order to spread the burden across generations and to avoid policy reversals,” he said.

Sanjeev Gupta, deputy director of the IMF’s fiscal affairs department, delivered the prepared speech on behalf of Furusawa, who could not attend the seminar because his flight had been canceled.