WASHINGTON, 24 October 2025 — Emerging Asia’s economic steely façade may be at risk of crumbling if global financial conditions shift, warns the International Monetary Fund (IMF). In a recent interview ahead of its latest regional outlook, Krishna Srinivasan, Director of the IMF’s Asia & Pacific Department, cautioned that the current favourable backdrop, anchored by a weak U.S. dollar, low long-term interest rates, and front-loaded exports, may not last.
Over recent years, many Asian economies have managed to withstand elevated U.S. tariffs better than expected. The combination of lower borrowing costs, benign currency moves and resilient export demand has masked vulnerabilities. Srinivasan pointed out that this cushioning could vanish if two major shifts occur: a resurgence in U.S. interest-rates and a strengthening dollar. In that scenario, Asian firms and governments with dollar-denominated debt would face rising servicing burdens, capital-flow pressures and tighter domestic financial conditions.
The IMF report projects Asia’s regional growth at 4.5% in 2025, slightly down from 4.6% in 2024, but still ahead of earlier forecasts. For 2026, it expects growth to slow further to 4.1%, a downgrade reflecting the tilt toward downside risks.
Key warnings for Asia emerging in the report:
- A stronger U.S. dollar would raise the cost of servicing foreign-currency loans and pressure inflation as import costs rise. Srinivasan remarked: “If the dollar appreciates, it could affect Asia too… financial conditions have been very supportive, but they could change.”
- A reversal of the low-interest-rate environment would remove a major buffer, higher yields make debt more expensive and could squeeze margins and investment in emerging economies.
- Asia’s reliance on export engines and external demand leaves it vulnerable to a policy shock, whether in trade, currency or global rates. The IMF blog emphasised that Asia has “weathered tariffs and uncertainty … but tight financial conditions are one of the headwinds ahead.”
For Malaysia and its ASEAN neighbours, these signals carry direct relevance. A stronger dollar translates into a weaker ringgit and higher import costs. Tighter global liquidity could dampen foreign-direct investment into the region. Furthermore, elevated U.S. tariffs and protectionist pressures have already forced Asian exporters to shift supply chains and front-load shipments, moves that may lose momentum if financing conditions worsen.
In short, while Asia’s growth has surprised on the upside so far, the IMF underscores that the real test is still ahead. As global monetary policy coils toward normalisation and external headwinds mount, the ability of regional economies to maintain resilience will hinge on managing debt-burdens, deepening domestic demand, and anchoring inflation expectations.
Source: Reuters
