Jakarta, CNBC Indonesia – The International Monetary Fund (IMF) has warned that countries in the ASEAN region face a potential economic slowdown due to the increasing decline in China’s economic growth.
Director of the IMF’s Asia and Pacific Department, Krishna Srinivasan, said that China’s economic slowdown which will deepen in 2024 and 2025 will have a direct impact on regional countries because of the very close relations between the two, both in terms of trade and investment.
“So, there is a very close relationship between ASEAN and China. So, as long as China slows down, ASEAN will also slow down,” he said at the Regional Economic Outlook for Asia and Pacific press conference, quoted on Wednesday (18/10/2023).
Krishna illustrates this connection by showing the average trend of the influence of China’s economic slowdown on ASEAN, namely for every 1 percentage point decrease in China’s economic growth, growth in other countries will slow down by 0.3 percentage points.
“So, when China slows down, every economy in the region tends to slow down. And if you look at our projections for ASEAN countries, we have projected slower growth this year partly because of China’s economic slowdown,” Krishna said.
The IMF estimates that China will experience a slowdown in economic growth in 2024 to 4.2% from the previous level of 5%. Then, a consistent slowdown occurred to the level of 4.1% in 2025.
The IMF revealed that China’s projected economic slowdown is based on declining domestic productivity, an aging society, and a lack of ability to rebalance its economic structure after its main driving sector, namely real estate, collapsed.
“The real estate sector in China is grappling with further pressure on debt repayment, home sales and investment. Based on these weaknesses, we have revised down China’s growth projections to 5 percent for 2023 and 4.2 percent for 2024,” said Krishna.
For Indonesia, China is the main trading partner country. The share of Indonesia’s exports to China in January-September 2023 reached 25.15% and this also increased from the January-September 2022 period of 21.81%.
Meanwhile, in terms of imports, the portion was much larger, reaching 32.92%, although it was down from the record for the same period the previous year of 33.88%.
For Indonesia itself, the IMF estimates that economic growth will stagnate at the level of 5% from 2023 to 2025. This resilience is supported by macroeconomic policies which are still very good at reducing global turmoil and controlling domestic prices.
“Inflation has been controlled with the central bank’s policy of raising interest rates. Fiscal policy is also very controlled and very careful. So, all the macroeconomic policies are what I would call good,” he said.
“And, there is economic dynamism that is very inherent in the Indonesian economy and that is what explains why Indonesia has growth of 5%,” said Krishna.
[Gambas:Video CNBC]
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