IMF highlights strong Asia economic growth in 2024 outlook

The International Monetary Fund (IMF) has released its latest Regional Economic Outlook, presenting a promising picture for Asia’s economic growth in 2024. The report indicates that Asia is set to surpass expectations, with regional growth projected to reach 4.5%, a 0.3% increase from the October 2023 forecast. This robust performance is primarily driven by strong domestic demand in emerging economies such as Malaysia, the Philippines, Vietnam, and India. Moreover, Asia is leading the way in addressing inflation compared to most other regions.

Krishna Srinivasan, director of the Asia and Pacific Department at the IMF, highlighted that Asia will contribute 60% of global growth in 2024. China continues to be the powerhouse of the Asian economy, albeit at a slower pace. Srinivasan outlined 5.3% GDP growth in the first quarter of 2024, surpassing market expectations. Robust policy stimulus has played a pivotal role in driving growth in China, with its positive momentum benefiting the entire region. Additionally, Srinivasan noted the significant contribution of strong public investment in India, including extensive capital expenditure (CapEX) on infrastructure development.

Investment plays a disproportionate role in driving growth in both China and India, whereas emerging Asia continues to rely on robust private consumption as its growth engine. With the backdrop of growth surprises, Srinivasan urged Asian governments to embark on fiscal consolidation, aiming to curb the rise in public debts and deficits.

The optimistic assessment of the Asia economy is not without its risks. Srinivasan noted that the behemoth property sector in China remains subdued, and a protracted correction in this sector could have far-reaching implications. He also noted a decline in Chinese export prices in the second half of 2023, which could exert pressure on countries producing similar goods, such as Vietnam and South Korea, and potentially affect export volumes.

Volatile global commodity prices could also impact India’s prospects. Srinivasan highlighted the risks of a substantial increase in oil prices, given India’s status as a major oil importer. However, the impact extends beyond oil, he says.

Looking beyond the short term, policymakers in Asia face significant challenges such as population ageing, slowing productivity growth, and the emergence of new technologies like artificial intelligence.

Sub-Saharan Africa’s critical mineral opportunity

In contrast, Sub-Saharan Africa is poised to leverage its rich reserves of critical minerals essential for sustainable technologies. The IMF’s report underscores the potential for these resources to transform the region’s economic landscape. With 30% of the world’s proven critical mineral reserves, including substantial cobalt, lithium, and manganese deposits, the region is strategically positioned to meet the surging global demand for electric vehicles and renewable energy technologies.

Between 2022 and 2050, the International Energy Agency (IEA) forecasts a doubling in nickel demand, a tripling in cobalt demand, and a tenfold increase in lithium demand. Additionally, the IMF anticipates that the extraction of copper, nickel, cobalt and lithium alone could generate a staggering USD16 trillion in global revenues over the next 25 years. Subsahara is strategically positioned to harness a significant portion of this wealth, with the establishment of a conducive business environment. The IMF estimates that the region could capture 10% of these cumulative revenues, contributing to a 12% increase in GDP.

The Sub-Saharan region remains heavily focused on extraction, with only a handful of local processing industries. IMF’s report highlights the significance of fostering local processing capabilities to maximise the return from both exporting raw materials and processing them domestically. This move also serves to insulate the region more effectively from volatile commodity prices. For instance, the authors outline the stark contrast in value between raw bauxite—a sedimentary rock with relatively high aluminium content—priced at a modest USD65 per ton, and processed aluminium, which commands a substantial USD2,335 per ton. Moreover, the mineral economy has the potential to bolster tax revenues, enhance living standards, and generate higher-skilled employment opportunities.

The report emphasised the need for cross-border collaboration and regionally coordinated policies to cultivate an attractive investment market. It outlined the potential role of the African Continental Free Trade Area (AfCFTA) in uniting fragmented critical mineral markets by reducing trade barriers and fostering infrastructure development.

Established in 2018 by the African Continental Free Trade Agreement, the AfCFTA’s long-term objectives include the creation of a single, liberalised market. Additionally, the IMF stressed the importance of transparent and accountable institutions, as well as sound public financial management, to oversee the financial boon derived from these mineral markets.

Latin America faces growth challenges

Meanwhile, Latin America continues to struggle with growth, projected to hover around 2% annually over the next five years. The region faces persistent challenges, including low investment, sluggish productivity growth, and demographic shifts leading to a declining labour force. The IMF emphasises the need for policies that enhance labour productivity and boost female workforce participation to drive economic growth.

Compounding these challenges are shifting demographics in the region. The IMF projected that population growth in the region will decline to around 0.6% per year in the next five years. In the two decades before the COVID-19 pandemic, population growth averaged about 1% per year.

An ageing population coupled with a smaller labour force will exert pressure on the Latin American economy. Despite witnessing a 50% increase in the region’s workforce between 2000 and 2020, the IMF anticipates no growth in the share of the working-age population over the next five years. In its latest update, the IMF emphasises the critical importance of driving productivity gains and boosting labour force participation through targeted policies, which are essential for fostering economic growth.

The IMF stresses the importance of tackling poor governance and stringent business regulations that act as a hindrance to labour productivity gains. Additionally, policies on expanding childcare programs and providing more training opportunities for women can enhance female participation in the workforce. Currently, female participation stands at 52%, compared to the 75% observed of men.

Conclusion

The IMF’s outlook for 2024 presents a mixed global economic landscape, with Asia leading in growth driven by strong domestic demand and strategic investments, while Sub-Saharan Africa has the opportunity to capitalise on its critical mineral wealth. Conversely, Latin America faces significant hurdles that require targeted policy interventions to overcome. The report underscores the importance of sustainable practices and coordinated regional policies to harness economic opportunities and mitigate risks.