Economic Forecasts: Asia and the Pacific

Notwithstanding robust growth and inflation largely returning to targets in 2024, the outlook for the region has been downgraded in the near-term in tandem with that for the global economy. This is mainly due to the recent tariff announcements by the United States, countermeasures by trading partners, and the unpredictability accompanying these changes. Asia-Pacific is both strongly exposed to the shock and faces a larger shock than other regions. Growth for the region is projected to slow to around 3.9 percent and 4.0 percent in 2025 and 2026, respectively, down from 4.6 percent in 2024 and 4.4 percent in 2025. Lower external demand, a soft tech cycle, and subdued private consumption will weigh on activity. Risks are tilted to the downside in the face of the region’s greater vulnerability to the uncertain trade environment and weaker-than-expected global demand as well as asset price volatility increasing the potential for disrupting capital flows and investment. Policy challenges remain acute, requiring a careful balance between near-term support for the economy and external stability, while pressing ahead with fiscal consolidation, stronger domestic demand, productivity gains, and deeper regional integration over the medium term.