A sharper-than-expected slowdown in China due to financial sector vulnerabilities coupled with the failure of Abenomics to sustainably turnaround Japan's economy are two main risks to Asia's economic outlook, the International Monetary Fund (IMF) said.
Nevertheless, the IMF expects growth in Asia to remain steady at 5.4 percent this year, up from an earlier 5.3 percent forecast, before improving slightly to 5.5 percent next year. Last year, the region grew 5.2 percent.
Asia also faces risks originating from outside the region it warned, noting a sudden or sharper-than-anticipated tightening of global financial conditions remains a threat.
"As growth in the United States improves, global interest rates will rise and Asia will face a further tightening in financial conditions," the IMF said.
"Bouts of capital flow and asset price volatility are likely along the way with exchange rates, equity prices, and government bond yields affected by changes in global risk aversion and capital flows," it said.
However, the fund says a pickup in external demand alongside a recovery in advanced economies and resilient domestic demand should continue to support growth across most of the region.