Asia's uneven recovery: China slows, India shines amid global headwinds

Asia-Pacific economic outlook: The International Monetary Fund (IMF) released its Regional Economic Outlook for Asia and the Pacific, painting a contrasting picture of the region's two economic giants. While China's growth is projected to slow to 4.6 per cent in 2024 and decline further in the medium term, India's economy is expected to remain resilient, growing at 6.5 per cent in both 2024 and 2025.

China's wobbly recovery

China's slowdown is attributed to a combination of factors, including a protracted property crisis, subdued external demand, and mounting local government debts. The IMF highlights the weakness in the property sector, a crucial driver of China's growth, which has been hit by declining sales and tighter financing conditions. This, coupled with subdued global demand and rising debt levels, is casting a shadow on China's economic prospects.

A bursting real estate bubble: The once-booming property sector, a pillar of China's growth, now faces a painful correction. Declining property prices, overleveraged developers, and dampened consumer confidence are creating a ripple effect throughout the economy.

Subdued external demand: Weakening global demand for China's exports, due to factors like the war in Ukraine and rising inflation, is adding further pressure.

Mounting debt: High levels of government and corporate debt pose a significant risk to financial stability and limit the government's ability to stimulate the economy.

India's growth story

In contrast, India's economy is projected to be a bright spot in Asia. Strong domestic demand, fueled by a large and growing population and rising disposable incomes, is expected to underpin India's growth momentum. The IMF also acknowledges the government's efforts in implementing structural reforms and improving the business environment, which are likely to attract investments and boost economic activity.

Export potential: India is strategically positioned to benefit from global trade diversification, attracting manufacturers seeking alternatives to China. Initiatives like "Make in India" are further bolstering its manufacturing prowess.

Tech boom: India's burgeoning tech industry, boasting startups and IT giants, is contributing significantly to GDP growth and job creation.

Overall Asia outlook

While the regional average growth has been revised to 4.5 per cent in 2024, significant divergence between countries persists. Japan's growth is expected to slow, while countries like Thailand and China have announced stimulus packages to counter headwinds. Inflation across Asia is projected to decline, providing some relief to policymakers and consumers. Some risks to watch out for include:

• A deeper China slowdown: A larger property market crash or tighter global financial conditions could lead to a sharper decline in China's growth, impacting the entire region.
• Geopolitical tensions: Trade wars, protectionism, and regional conflicts could disrupt trade flows and hinder economic cooperation.
• Inflationary pressures: Rising global commodity prices and tightening monetary policies could dampen consumer spending and investment.