How Asia is stepping up efforts to boost economic resilience as economic growth slows

Asia’s economic growth faces significant headwinds in response to global tensions, but stronger regional ties and smart policies could help build resilience for the future.

A blog post by Thomas Helbling, Andrea Pescatori, and Krishna Srinivasan from the International Monetary Fund (IMF) has highlighted that Asia accounted for nearly 60% of global growth in 2024. However, increasing trade tensions, particularly between the United States and China, are challenging the region's growth model.

In 2025, growth in Asia is expected to slow to 3.9%, a sharp downgrade from 4.6% in 2024. This marks the steepest decline since the pandemic.

The impact of rising trade tensions

US tariffs, now at their highest in over a century, are mainly targeting Asian exports. While some of these tariffs have been paused, trade tensions between the US and China continue to escalate, and uncertainty around trade policy remains high.

The region’s advanced economies are expected to see weaker growth, with forecasts down to just 1.2% in 2025. Emerging economies, on the other hand, will experience slightly stronger growth at 4.5%, but this is still 0.5% lower. Growth in China has been downgraded to around 4% for 2025, while India’s growth will also slow moderately to 6.2% in 2025 and 6.3% in 2026.

The forecasts for some other Asian markets are as follows:

• Hong Kong: 1.5
• Singapore: 2.0
• Japan: 0.6
• Korea: 1.0
• Macao: 3.6
• Indonesia: 4.7
• Malaysia: 4.1
• Thailand: 1.8
• Vietnam: 5.2
• Philippines: 5.5

Weakening global demand and export reliance

Asia’s economies have long relied on export-led growth, particularly in sectors such as high-technology products, which have seen strong demand. However, this export dependence makes the region more vulnerable to fluctuations in global demand, especially from the US. The region’s growth model faces increasing challenges as tariffs and trade barriers rise.

The weakening global economy, combined with tighter financial conditions, is expected to further dampen growth prospects. The ASEAN region, for example, is expected to see growth slow to 4.1% in 2025 due to external and domestic challenges.

Moving towards a more balanced growth model

In response to these challenges, experts suggest that Asia must focus on boosting domestic demand to reduce dependence on exports. This could include measures to encourage consumption, such as strengthening social safety nets and reducing precautionary savings, especially in countries such as China.

In addition, boosting private investment through labour market reforms, improved business environments, and investment in education and healthcare will be key to sustaining growth.

Expanding regional economic ties

Regional integration could also help buffer Asia’s economies against external shocks. Initiatives such as the Regional Comprehensive Economic Partnership (RCEP) are aimed at strengthening ties within the region, particularly in trade, services, and finance. Expanding intra-regional trade in ASEAN could provide a more stable economic base for the region.

Flexibility in fiscal and monetary policies

Countries across Asia face the challenge of managing fiscal policy amid higher debt levels resulting from pandemic-related spending. While there is a need to rebuild fiscal buffers, targeted fiscal support is still required to protect vulnerable sectors and populations from external shocks.

Several countries are taking steps to improve their fiscal positions. For example, India is working on containing debt while promoting tax efficiency. Mongolia has introduced stricter fiscal rules to improve transparency and long-term sustainability, and Sri Lanka has made progress on fiscal reforms under its IMF-supported programme.

Long-term resilience through structural reforms

Beyond short-term measures, structural reforms will be essential for sustaining long-term growth and resilience. This includes improving productivity, which has slowed in many Asian economies over the past decade.

Investing in digital technologies, such as artificial intelligence, and building stronger infrastructure can help reverse this trend. Countries such as Singapore, Korea, and India are already making strides in digital competitiveness, and these efforts could help enhance productivity and foster new job opportunities in services.

Asia’s export-led growth model has brought prosperity, but with changing global conditions, policymakers must act quickly. This means using fiscal policy to support struggling sectors while planning for long-term fiscal health, boosting domestic markets through reform, and strengthening regional ties. By making smart policy choices, Asia can transition from the world’s factory to a dynamic, resilient, and integrated economic power.

Infographic / International Monetary Fund