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International Monetary Fund. Asia and Pacific Dept

Abstract

Growth in the first half of 2018 was softer than in 2017, especially in advanced economies. In contrast, growth remained robust in emerging market economies and broadly in line with expectations. After rising to 6.9 percent in 2017, growth in China continued to be strong into the first half of 2018 but has likely slowed since, given the latest high-frequency indicators, including weakening investment growth. In Japan, after exceeding potential for two years, growth dropped into negative territory in the first quarter of 2018 before rebounding sharply in the second quarter. In India, growth continues to recover steadily after the disruptions related to demonetization and the rollout of the goods and services tax in the last fiscal year.1 And in ASEAN-4 economies (Indonesia, Malaysia, the Philippines, Thailand), growth generally lost momentum in the first half of 2018, except in Thailand.

International Monetary Fund. Asia and Pacific Dept

1 percent in the United States; other economies in Asia, many of which supply to China through global value chains and/or are heavily involved in the automotive trade, would also see their economies slowing substantially, and the peak GDP loss for Asia as a whole would be 0.9 percent ( Figure 7 ). 4 Aggregate short-term job losses would likely be limited, but certain sectors—particularly those targeted by specific tariffs—could see sizable impacts ( Figures 8 and 9 ). Figure 6. Trade Tension Scenarios—Decomposed by Economy in Asia for Real GDP (Percent

International Monetary Fund. Asia and Pacific Dept

relative to the April 2018 WEO by 2020 (Year 3), followed by United States at -0.5 percent of GDP. Countries with the strongest and most diverse trading relationships with China, such as Korea, suffer larger spillovers. Those more reliant on the United States may suffer less, as they may experience some trade diversion, as U.S. demand that formerly was met by China can now be met by other partners, not just the domestic economy. The Impact of U.S.-China Trade Tensions Scenario on Real GDP Across Asia and the Pacific (Deviation from April 2018 WEO baseline

International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation with Australia discusses that a continued gradual economic recovery is expected, subject to downside risks. Growth should continue to recover in 2020, but it will take time for the economy to return to potential and restore inflation to within the target range. Despite sound macroeconomic fundamentals and policy management, growth remains below potential and inflation is slightly below its target range. Growth is projected to recover gradually in the near term, supported by monetary policy easing, tax cuts, and the recovery of housing markets. Nonetheless, inflation is forecast to remain slightly below the target range until 2021 due to persistent economic slack. Downside risks, including a renewed escalation of the China–US tensions and weaker private consumption, remain elevated and have increased recently due to the widespread bushfires and the coronavirus outbreak. On the upside, looser financial conditions could re-accelerate asset-price inflation, boosting private consumption but also adding to medium-term vulnerabilities.
International Monetary Fund. Monetary and Capital Markets Department

Tensions Scenario Analysis Using the Growth-at-Risk Approach Source: IMF staff estimates. Note: The bands are based on the interquartile range of GaR predictions (near and medium term), based on historical data since 1990:Q1. Baseline distributions correspond to the latest GaR assessment, as of 2018:Q3, presented in Figure 1.3 of the main text. The lines indicate the pairs of near- and medium-term forecasts and do not assert a linear relationship between the two periods. GaR = growth-at-risk. This box was prepared by Jeffrey Williams and Sheheryar Malik. 1

International Monetary Fund. Research Dept.

the short-term substitutability between imports from China and the euro area and those now higher-priced tariffed goods. Scenario Figure 1 . Real GDP in Trade Tensions Scenario (Percent deviation from control) Source: IMF staff estimates. Note: G20 = Group of Twenty; NAFTA = North American Free Trade Agreement. Not surprisingly, if firms curtail investment, given their concerns about the impact of a deteriorating global trading environment, output suffers everywhere, with the impact more pronounced where there are constraints on conventional