Amid mounting global uncertainties and a dimming recovery outlook, the International Monetary Fund (IMF) released its latest World Economic Outlook during the 2025 Spring Meetings. The reports come at a time of renewed trade tensions, elevated debt levels, and tightening global financial conditions—all of which have intensified pressure on Asia-Pacific economies.

With the U.S. delaying interest rate cuts and reimposing tariffs on key trading partners, countries in Asia now face a highly uncertain external environment. Fragile supply chains, shifting investment flows, and rising refinancing costs are forcing policymakers to reassess their fiscal buffers and structural reform agendas.

In this context, we sat down with Thomas Helbling, Deputy Director of the IMF’s Asia and Pacific Department, at IMF headquarters in Washington. In a wide-ranging conversation, Helbling addressed the risks posed by the latest round of tariffs, potential disruptions to Asia’s industrial supply chains, and the spillover effects of Fed policy.

Helbling emphasized that Asia-Pacific’s relatively favorable starting point should not breed complacency. Instead, he urged governments to seize this critical juncture to "keep their house in order" and pursue bold structural reforms. From social safety nets to labor market flexibility and digital transformation, he argued that reform is not only necessary for long-term productivity gains but also essential to restoring public confidence and enhancing resilience in an increasingly fragmented global economy.

Southern Finance: My first question, of course, let's focus on the new wave of tariffs. So how did the IMF revise the GDP forecast for Asia-Pacific region given the new wave of tariffs? And also, what is the downside risk from the prolonged trade tensions?

Thomas Helbling: Yes, indeed, we have lowered our forecast for global growth. As you know, there was the WEO release, and in that context, we have also lowered our forecast for the Asia-Pacific region. We have now growth of 3.9% this year in 2025, and 4% next year, 2026.

That's a relatively significant downward revision by 0.5 percentage point for this year. So we have now growth in the region slowing from 4.6% last year, 2024, to 3.9% this year. As for the downside risk, they are significant and a big concern.

It's both the escalation of trade tensions recently, and it's also the trade policy uncertainty. So the uncertainty where the global trading system, global trade arrangements will go, and that has been highlighted as a significant downside risk. You have both the impact on tariffs, possibly disruptions to supply chains, to deliveries, and you have the uncertainty from trade policy uncertainty.

So investment decisions will be held back, purchase decisions, and that too can lower growth even more than we anticipated.

Southern Finance: So how will the new wave of tariffs impact the industrial supply chains in Asia-Pacific region?

Thomas Helbling: So in the near term, we think probably the biggest impact will be because of uncertainty, where this is going. Supply chains will adjust.

Some people have compared them to water, that they look for the path of least resistance. So supply chains will adjust depending on the tariff and trade policies that will emerge. So at the moment, there's considerable uncertainty.

So in the near term, there's probably just a bit scaling back investment with looking where to invest, and trade flows will  adjust. So it's too early to tell really.

Southern Finance: Besides the tariffs and the uncertainty we just covered, what are some other risks and also opportunities for Asia-Pacific region economies in 2025?

Thomas Helbling: So trade is big. We have to see that. Economies in the Asia-Pacific region are very open. Over the past few years, exports have been a driver of growth. So the new world will be a change, will mark a change in the outlook. Now, other factors to consider overall, I think we think the Asia-Pacific region starts from favorable initial conditions. If you just look at macroeconomic conditions, output gaps in many economies have been closed after the pandemic shocks.

And then after the inflation surge, inflation is broadly back to target. In a few economies, it's actually too low. And as our managing director said, every challenge or every risk also presents an opportunity.

I think that's also true for the global trading system. It's also true for our countries in the sense there are chances now to address policy issues. In fact, there's a need, the IMF has said, to strengthen, become more resilient.

It's important to keep your house in order and on bold reforms. We have advocating many structural reforms, for example, for Asia that ranges from strengthening social safety nets, from strengthening productivity to address aging, be prepared for aging in many areas where there are opportunities that can also strengthen domestic economies.

Southern Finance: You just talked about that inflation in developing countries starts to slow down gradually. However, inflation in the United States remains kind of sticky. And also, the Federal Reserve delayed to cap rates. So what are the spilling over effects to emerging markets with financial tightening?

Thomas Helbling: So when we talk about financial tightening and the U.S. Fed more recently, there have been two aspects.

One is U.S. inflation, what the Fed does, targets, and what the Fed does on policy rates. The other, I think, equally important, if perhaps not more important, is what global capital markets do and how in global capital markets risk is priced. So if we start with the U.S. Fed, there we have to say countries have an influence on how much Fed policy will influence their domestic markets.

We have been saying in past regional economic outlooks that countries in Asia should mostly focus or orient their monetary policy on domestic conditions, inflation, price stability in particular. So at the moment with inflation at target, or in some cases, say China or Thailand, inflation below target, there is scope for monetary policy easing now with the trade shock. So if we think of the Fed delay in policy rate cutting, possible cut or delays, as financial tightening, countries can deal with that.

It's much more difficult with the second concern about financial tightening, that is recent global market volatility, the repricing of risk. Pricing of risk is global, and what countries can do there is being sure that their financial systems are regulated, have buffers, and reduce vulnerabilities.

Southern Finance: Is there anything else from your report you would like to share with our audience in Asia Pacific region?

Thomas Helbling: So in general, the trade shock are large, are a concern, and the IMF has highlighted two points, and I think they also apply to the Asia Pacific region. Keep your house in order and embark on structural reform. Asia faces a number of issues on the structural side as I mentioned earlier. I think there is a need to boost productivity. Productivity growth has been slowing, so there are various opportunities as arise from strengthening digitalization, for example, infrastructure, education, dealing and preparing the economies for aging economies, I think will be very important.

So strengthening social safety in it, but also labor market reform to allow people to work longer and make labor markets more flexible to allow for the easier integration of older people in the workforce or people staying in the workforce. Also opening up markets, greater regional integration, removing trade barriers for regional trade, removing trade barriers in services trade. And on the macroeconomic side, I think reducing imbalances.

And there we have in particular called for creating fiscal buffers. Fiscal policy was used during the pandemic that has increased. So we see at the moment the scope to reduce deficits, increase fiscal buffers and be ready to deploy fiscal policy when the impact of the shock will be greater, if it will be.

Southern Finance: Speaking about the fiscal policy, this morning I just attended the fiscal monitor press conference, and they have been repeatedly mentioning about the high debt problem. So high debt remains extremely elevated. What kind of consequences or risks do you believe the high debt problem would bring to emerging markets in Asia Pacific?

Thomas Helbling: So high debt has a number of issues. An immediate concern for fiscal policy is that the interest rate bill in the budget is much higher. That reduces the scope for other, more productive spending.

It also makes budgets more vulnerable to fluctuations in interest rates in the global economy. It makes budgets more, exposes them more to market sentiment. That's one thing.

It also, high debt reduces the scope for fiscal policy to reduce, to respond to shocks. So that's the fiscal buffer aspect that remain. And in the longer term, if you look at emerging markets, depending on the country, we see scope for increasing productive government spending on education, on health, on infrastructure. That's important for long run development. With high debt, there's a constraint on that. And we see this also from a longer-term development perspective as a risk.