(Yicai) Oct. 24 -- A smaller-than-expected tariff impact is one of the three main reasons why the International Monetary Fund raised its prediction for China's economic growth forecast this and next year, according to the IMF's deputy director for Asia-Pacific.

The fact that the tariff shock was not as intense as expected, the front-loading in the Chinese economic activity, and domestic policy support gave China stronger-than-expected resilience, Thomas Helbling told Yicai.

Helbling also praised the country's efforts to rebalance the economy, which began in September last year, and expressed hope that the 15th Five-Year Plan will focus more on structurally raising household income.

The IMF raised its gross domestic product growth forecast for China to 4.8 percent this year and 4.2 percent next year in its latest Regional Economic Outlook for Asia and the Pacific, released yesterday, from the 4 percent for both years predicted in the previous outlook released on April 24.

The forecast for Asia's economic growth for 2025 was raised to 4.5 percent from 3.9 percent, while that for 2026 was lowered to 4.1 percent from 4 percent because of accumulated adverse effects from tariffs.

Excerpts from the interview are below:

Yicai: The IMF has just released its newest Regional Economic Outlook for Asia and the Pacific. What are the main takeaways?

Thomas Helbling: 2025 has been evolving better than feared in April. I think there are a number of factors. One is on the trade side. The tariff shock has happened, but the tariff shock has not been quite as intense as expected.

The other factor, which is more temporary in nature, has contributed to the expectations, that has also contributed to what we say is front loading. But it's not just trade. Also the AI cycle has been much stronger. It has led to very strong investment demand across the world.

The third factor has been policy support. In addition, financial markets have eased much more broadly. The weaker dollar, especially for emerging markets, is actually a plus.

So 2025 will be stronger than expected. For regional growth, we now expect 4.5 percent this year. We expect some slowing in 2026 relative to 2025, so from 4.5 percent to 4.1 percent. The main reason is the tariffs, as their negative effects will be building over time.

The second message we highlight is that not all is good. There are two factors. One is medium-term growth. Trade growth is lower than it was before and will continue to do so, especially with weaker productivity growth and slowing or even declining labor force growth, depending on demographics. The second factor is that across Asia, domestic demand in many economies is weaker than it has been since the pandemic.

Yicai: The whole world economy, and this region's economy, is not as bad as we feared six months ago. Does that mean that the worst is behind us, or has the real pain just been delayed?

Helbling: The worst is not quite behind us in the sense that the tariff effects will be building over time and become bigger in 2026. That's why we see lower growth. There's still work to do because going into the future will not be easy. In Asia, rising pressures from population aging will lead to higher expenditure and fiscal pressures that will be a challenge.

Yicai: Can I say that because of the tariff policies of the United States, the medium- and long-term growth for these regions will be dim?

Helbling: I wouldn't say it's dim. The trade relationship with the US is just one part of the global trading system. As we highlight, there is more that can be done outside of that relation.

We have said to try and resolve the trade tensions, which has been a call to all our member countries, so clearly, more should be done.

The other pillar is to work on trying to strengthen trade integration in other ways. In Asia, there is scope for more regional trade integration. A lot of integration has been at the level of the supply chain, but in terms of final goods, it is still relatively low.

Third, as our managing director has said, there are other opportunities: structural reforms, strengthening the private sector, and unleashing domestic demand as a source.

Yicai: You revised up China's growth forecast to 4.8 percent this year from your April projections, but for 2026, it is only 4.2 percent. What are the main downside risks for China?

Helbling: We see two downside risks. One is on the external side if trade tensions intensify again. Number two is in our baseline. We expect less fiscal stimulus next year compared to 2025. We have argued China should continue with expansive fiscal policies, especially those that support private consumption, and the rebalancing of the economy, with a bit more monetary policy easing and steps to help local governments, and try to improve the situation in real estate.

Yicai: Since last September, China has made a very important policy shift to rebalance the economy towards consumption. Now, the entire business community is waiting for the 15th Five-Year Plan. What is your expectation? Do you see that the rebalancing trend will continue in the plan?

Helbling: We hope so. China's rebalancing is important, as we have argued for some time. Domestic demand and private consumption need to play a bigger role as a driver of growth going forward. More steps can be taken, and there are still big gaps between urban and rural areas.

In the near term, more transfers to rural areas could help. Other reforms that reduce the need for savings by rural areas, including further reforms in the hukou system, could also help.

Second, in terms of social security, social safety net, health, and pensions benefits could be increased, and there could be more certainty. This would help the country raise household incomes, strengthen the role of consumption as a driver of growth, and lead to more balance in the economy.

Editor: Futura Costaglione