China and Japan's economies are expected to slow sharply over the next two years but Asian growth will remain strong as domestic demand takes up the slack from weak global trade, the International Monetary Fund (IMF) said Tuesday.
Government stimulus measures, lower commodity prices and low unemployment will help drive regional expansion, the IMF said, and called on leaders to push on with reforms.
However, in its Regional Economic Outlook for Asia and the Pacific, the Fund also warned of several external challenges, from weakness in advanced economies, weak global trade and increasingly volatile global financial markets.
"Asia remains the most dynamic part of the global economy but is facing severe headwinds from a still weak global recovery, slowing global trade, and the short-term impact of China's growth transition," the Fund said.
"To strengthen its resilience to global risks and remain a source of dynamism, policymakers in the region should push ahead with structural reforms to raise productivity and create fiscal space while supporting demand as needed".
The Fund predicted growth in Asia to come in at 5.3 percent this year and next, down from its previous forecast of 5.4 percent. China's economy, the world's second biggest and a crucial driver of global growth, is tipped to expand 6.5 percent this year, the lower end of Beijing's target, and 6.2 percent in 2017.
The figures are well down from the 6.9 percent seen in 2015, which was the slowest rate in a quarter of a century, but slightly better than the IMF's October outlook.
Meanwhile, Japanese growth is tipped to slow, with the Fund saying exporters would be hit by the strengthening yen, which is at 18 month highs against the dollar, and slowing trade with China.
It halved its growth outlook for Japan to 0.5 percent in 2016 and tipped it to shrink 0.1 percent owing to an expected consumption tax rise, while it also cited the long-running problem of an ageing population and a huge debt mountain.
The report said India would grow 7.5 percent this year and next, unchanged from its previous prediction and the fastest rate among the world's big economies, as low oil prices, government investment and a pick-up in domestic consumption offset weak exports.
In South Korea, growth was forecast to rise to 2.7 percent this year and to 2.9 percent in 2017, up from 2.6 percent in 2015 and again boosted by domestic demand. Australia's growth is expected to remain stable at 2.5 percent in 2016 and pick up in 2017.