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IMF cuts Asian growth forecast as West's crises bite
by Staff Writers
Hong Kong (AFP) Oct 9, 2012

The IMF on Tuesday cut its growth forecasts for developing Asia, blaming a slowdown in Europe and the United States, and warned that China's attempts to boost its economy had not taken hold.

It also scaled back its forecast for Japan, saying disaster reconstruction spending would tail off and lead to weaker growth next year.

The International Monetary Fund's World Economic Outlook comes at the beginning of a week that will see it and the World Bank hold their annual meetings in Japan. The Group of Seven also meets this week.

It also reinforces concerns expressed by the World Bank on Monday and the Asian Development Bank last week as they cut their own regional forecasts, citing global weaknesses.

The IMF said growth for developing Asia would come in at 6.7 percent this year and 7.2 percent in 2013. That compares with July's estimate of 7.1 percent this year and 7.5 percent next year.

"Compared with the region's growth performance in recent years, the near- and medium-term outlooks are less buoyant," the report said.

"This view reflects weaker anticipated external demand resulting from the tepid growth prospects in major advanced economies and a downshift in China's and India's growth prospects."

It warned that a worsening of the eurozone debt crisis and failure by US lawmakers to avert a possible "fiscal cliff" could fuel problems.

China's economy, a key driver of regional growth, will see just 7.8 percent expansion this year, the IMF warned, but 8.2 percent next year as easing measures kick in.

Both figures are lower than the July forecasts of 8.0 percent and 8.5 percent.

"Slowing growth in China has affected activity in the rest of Asia, a consequence of the deepening of linkages throughout the region in the past decade," it said.

It warned "a return to double-digit growth in China (is) unlikely" as the country's leaders try to shift from an export-driven economy to one balanced with domestic demand.

The numbers are well down from the 9.3 percent surge in 2011 and 10.4 percent in 2010.

Beijing has tried to spur growth by slashing interest rates twice this year and cutting the amount of funds banks must keep in reserve. "This easing, however, has not yet gained the traction expected earlier in the year," the IMF said.

Japan is tipped to see 2.2 percent growth this year thanks to spending on post-tsunami work, but that would ease to 1.2 percent next year. In July the IMF forecast 2012 growth of 2.4 percent and 1.5 percent in 2013.

The Fund did say monetary easing would support the economy but further measures would be needed to fight painful deflation.

There are also growing fears about the impact on the world economy of a territorial feud between China and Japan.

India is seen growing 4.9 percent this year and 6.0 percent next, with the IMF blaming "stalled investment caused by governance issues and red tape, and a deterioration in business sentiment" as well as a weakening rupee.

However, US Treasury Secretary Timothy Geithner, following talks in New Delhi Tuesday, welcomed a string of economic reforms in India that open up large sectors of the economy to foreign companies, calling them "very promising".

IMF chief economist Olivier Blanchard told reporters in Tokyo earlier Tuesday he did not see China and India suffering a hard landing.

"Indeed we see positive policy measures being taken... but they suggest lower growth for some time, lower than we have seen in the recent past," he said.

Blanchard said efforts to cut deficits were clearly needed but added: "This is a marathon not a sprint."

On Monday the World Bank slashed its 2012 growth forecast for developing countries in East Asia and the Pacific to 7.2 percent, dragged down by what it said would be China's worst performance for 13 years.

And the ADB last Wednesday reduced its estimate for Asia's emerging economies to the lowest level since 2009, while also warning of significant risks from problems in Europe and the United States.

Slowing exports were also blamed by the IMF for weaker growth in three of Southeast Asia's five biggest developing economies -- Indonesia, Thailand, Malaysia, the Philippines and Vietnam.

The report said only the Philippines and Thailand would see improvement this year compared with 2011, with the latter boosted by reconstruction and investment after devastating floods hit the country's north.

However, overall the five would enjoy growth of 5.4 percent this year and 5.8 percent next year. Last year saw growth of 4.5 percent.

Singapore finance minister Tharman Shanmugaratnam warned a Hong Kong conference attended by his counterparts from Southeast Asia Tuesday the world economy was "caught in a situation that isn't going to resolve itself soon".

"A return to normal growth is not likely, it's not in the cards for a few years," said Shanmugaratnam.

He said the crisis meant the Association of Southeast Asian Nations should make the most of booming trade among its members and achieve its goal of creating a single market by 2015.

"If we keep doing what we are doing in ASEAN our prospect remains bright," he said.


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