Asia-Pacific Growth Faces Pressure as US Tariffs and Sanctions Raise New Risks: IMF

Mumbai | October 24

Asia’s strong start to 2025 may not last much longer. The IMF warned that while exports and manufacturing outperformed expectations earlier this year, the full impact of U.S. tariffs and trade disruptions has yet to be felt. The Asia-Pacific region now faces slower growth and rising geopolitical risk.

Asia’s Growth Momentum May Fade, Says IMF

In its latest regional outlook, the IMF projected Asia’s growth at 4.5% for 2025, slightly below last year’s 4.6%, and easing further to 4.1% in 2026.

The Fund said recent strength in exports and manufacturing was boosted by AI-driven demand and companies rushing to complete orders before tariffs took effect — a temporary boost unlikely to last.

“The intensification of trade tensions continues to be a major downside risk for the region,” the IMF said. “Volatility in U.S.–China relations could weigh on investment and confidence.”

The report also highlighted that domestic demand remains weak in many Asian economies. High debt, fragile property markets, and slow job growth have kept consumer spending below pre-pandemic levels. With fiscal space limited, governments have less room to support growth, leaving the region more exposed to external shocks.

US Sanctions on Russian Oil Add a New Layer of Risk

Just as Asian exporters were adapting to U.S. tariffs, a new challenge has emerged — sanctions on Russia’s largest oil companies, Rosneft and Lukoil.

The measures restrict global refiners and banks from dealing with these firms, indirectly affecting key buyers like India and China, which together purchase nearly five out of every six barrels of Russian crude exported globally.

These discounted imports have helped both economies manage inflation and fuel costs since Western sanctions began in 2022. But Washington’s latest crackdown could pressure Asian economies to rethink their dependence on Russian crude.

Beijing swiftly condemned the U.S. move as “unilateral and lacking legal basis,” while New Delhi maintained a more measured tone — reaffirming energy security as a national priority.

Also Read: Crude Oil Prices Surge as US Sanctions Hit Russian Giants; ONGC, Oil India, BPCL, Reliance in Focus

Modi Balances Diplomacy and Energy Security

Prime Minister Narendra Modi is walking a fine line between maintaining affordable energy imports and strengthening trade ties with the U.S.

India has resisted American pressure to end Russian oil purchases, arguing that the country must prioritise its growth needs. Modi recently said India’s position was guided by “energy security and the welfare of 1.4 billion citizens.”

At the same time, New Delhi continues talks with Washington to secure a trade deal that could ease the 50% U.S. tariffs imposed on Indian goods in August.

According to energy analysts, India could diversify its oil imports over time by sourcing more barrels from the Middle East, Latin America, and the U.S. — but the shift would need to be gradual to avoid supply shocks.

India and China Walk a Diplomatic Tightrope

Both India and China now face a delicate balancing act — managing energy security while navigating rising U.S. geopolitical pressure.

China has openly criticised the sanctions as “unilateral and without legal basis,” accusing Washington of weaponising trade. Its oil majors are reportedly reviewing Russian crude purchases amid concerns over secondary sanctions.

India, meanwhile, continues to take a measured, strategic stance. New Delhi is avoiding confrontation while prioritising domestic growth and energy affordability. The government is exploring ways to diversify its oil imports from the Middle East, Latin America, and even the U.S., to gradually reduce dependency on Moscow.

At the same time, Prime Minister Modi’s administration is pursuing trade talks with Washington to ease tariff pressures and stabilise relations. Diplomatically, India is trying to balance two imperatives — preserving energy access from Russia and safeguarding its long-term economic partnership with the U.S.

Asia’s Balancing Act Between Growth and Stability

The IMF warned that these trade disruptions, coupled with the rapid growth of artificial intelligence, could reshape Asia’s economic landscape. While AI investment has supported growth this year, it could also deepen inequalities if smaller firms fail to adapt.

The Fund urged policymakers to use targeted fiscal and monetary tools to soften the blow of trade shocks and support jobs and incomes. Long-term growth, it said, will depend on structural reforms that strengthen domestic demand and improve productivity.

Also Read: Diwali 2025: Can India’s Festive Spirit Power the Next Market Rally?

Investor Takeaway

For investors, Asia remains a key pillar of global growth, but the path forward looks more volatile. The combination of tariff hikes, sanctions, and shifting trade alliances means markets could see more short-term turbulence even as long-term fundamentals stay strong.

India’s careful diplomacy, China’s export resilience, and the broader regional adjustment to U.S. trade policy will determine the pace of recovery.

As Prime Minister Modi said, “India’s growth journey will stay on course — guided by stability, self-reliance, and global cooperation.”

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