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POLITICAL ECONOMY
IMF sees mixed Asian outlook for 2013; lowers China forecast
by Staff Writers
Beijing (AFP) April 16, 2013


Moody's lowers China credit rating outlook
Beijing (AFP) April 16, 2013 - Ratings agency Moody's cut China's credit outlook to stable from positive on Tuesday, citing concerns on the country's opaque local government debt, fast bank lending growth and stalled economic reforms.

Moody's kept China's rating at Aa3, but the change in outlook means it does not expect to give China an upgrade over the next year to 18 months.

It came a day after Beijing announced growth in the world's second-largest economy slowed to 7.7 percent in the first quarter, lower than market expectations.

"Progress has been less than anticipated in the process of both reducing latent risks by making local government contingent liabilities more transparent and in reining in rapid credit growth," Moody's said in a statement.

"Credit-positive structural reforms under the new leadership are expected over time, but their scope and pace may not be sufficient over the course of the next 12-18 months to justify a rating upgrade," it added.

The slowdown from growth of 7.9 percent in the last three months of 2012, which snapped seven straight quarters of deceleration, fuelled fears that recovery is faltering on subdued overseas demand and domestic woes.

Moody's warned that "a significantly greater-than-anticipated slowdown in economic growth", a deterioration in government finances and a rise in social unrest could add "downward pressure" on China's credit rating.

Risks from China's local government liabilities could "derail the transition to a more balanced and more moderately growing economy", it said.

Beijing's National Audit Office identified local-level debt at 10.7 trillion yuan ($1.7 trillion) at the end of 2010, or 27 percent of the Chinese economy in the year, the latest figures available. But the agency said the actual number could be even larger.

Moody's said Chinese authorities lack policy tools to control shadow banking, which is increasingly driving credit growth, and need to take steps to ensure it does not destabilise the financial system in the future.

Oil tumbles for second day on slower Chinese growth
Singapore (AFP) April 16, 2013 - Oil prices tumbled in Asia Tuesday, with Brent falling below $100 a barrel, on demand fears after Chinese growth data indicated a pick-up in the world's number two economy remained fragile.

New York's main contract, light sweet crude for delivery in May dropped $1.04 to $87.67 a barrel, while Brent North Sea crude for May shed $0.99 to $99.64 in the afternoon. Brent is below $100 for the first time since July.

"The market is mainly still reacting to the poor GDP numbers out of China, which has reaffirmed the trend that the world's second-biggest economy is slowing," David Lennox, resource analyst at Fat Prophets in Sydney, told AFP.

Growth in China eased to 7.7 percent in the first quarter, data showed Monday, below forecasts for 8.0 percent.

"Many had called the bottom for China's economy and with Europe languishing with low growth many had pinned consumption and demand to be driven by China," Jason Hughes, head of sales trading at CMC markets in Singapore, wrote in a note. "This now seems to be perhaps a bit too optimistic."

The market was also weighed by disappointing data from the United States, analysts said.

April data showed a larger-than-expected slowdown in New York state manufacturing and a drop in confidence of US homebuilders.

The IMF painted a mixed picture for Asia's top economies on Tuesday, trimming its Chinese growth forecasts but predicting Japan's fiscal stimulus will help end years of stagnation and Indian growth will accelerate.

For the region as a whole, it predicted growth will "pick up modestly" to about 5.75 percent this year, boosted in part by a recovery in demand from outside the region and firm consumption and private investment within.

But the IMF's World Economic Outlook also cautioned that possible dangers inside and outside the region could upset the positive scenario.

"The potential impact of external risks on Asia remains considerable," the report said. "In the event of a severe global slowdown, falling external demand would exert a powerful drag on Asia's most open economies."

It cited financial imbalances and rising asset prices as risk factors and also warned of potential "disruptions to trade from territorial disputes", an apparent reference to ongoing rows China has with Japan and some Southeast Asian nations over maritime claims.

For China, Asia's largest economy, the Washington-based International Monetary Fund lowered its growth forecast for this year to 8.0 percent, a day after Beijing announced a shock downturn in the first quarter.

The IMF cut its prediction for growth in China, Asia's largest economy, from the 8.2 percent it had given in January.

It did not give a reason for the reduction, but said expansion would pick up slightly from last year's actual 7.8 percent, citing "continued robust domestic demand in both consumption and investment and renewed external demand".

On Monday China announced that economic growth slowed to a surprisingly weak 7.7 percent in the first three months of this year, well below forecasts and fuelling fears a recent pick-up is faltering.

Beijing's January-March figure compared with a median 8.0 percent forecast in a poll of economists by AFP and marked a slowdown from 7.9 percent in the previous quarter.

China's 2012 economic growth of 7.8 percent was its slowest in 13 years amid weakness domestically and in overseas markets. Authorities last month kept their growth target for this year unchanged at a conservative 7.5 percent.

The fund also cut its forecast for China's growth in 2014 from 8.5 percent to 8.2 percent.

Earlier Tuesday ratings agency Moody's cut China's credit outlook to stable from positive, citing concerns on the country's opaque local government debt, fast bank lending growth and stalled economic reforms.

The IMF was more optimistic about Japan, tipping its economy to grow 1.6 percent in 2013 and 1.4 percent in 2014, up from its January forecast of 0.4 percent and 0.7 percent.

It also said consumer prices will edge up 0.1 percent on-year in 2013, but rocket 3.0 percent in 2014, against 0.0 percent in 2012, thanks to the Bank of Japan's fresh monetary easing announced this month.

"After many years of deflation, and little or no growth, the new government has announced a new policy, based on aggressive quantitative easing, a positive inflation target, fiscal stimulus, and structural reforms," the IMF said.

"This policy will boost growth in the short term" and that is reflected in the IMF's latest forecasts, it said.

While it welcomed the BoJ's new monetary easing framework it added "easing must be accompanied by ambitious growth and fiscal reforms to ensure a sustainable recovery and reduce fiscal risks".

In India, Asia's third-largest economy, the IMF said growth will accelerate from 4 percent last year to 5.75 percent in 2013 and 6.2 percent the next year, thanks to stronger external demand and recent "pro-growth measures".

"External demand, solid consumption, a better monsoon season, and policy improvements are expected to lift activity in India," the report said.

The IMF said growth in Southeast Asia's five biggest developing countries -- Indonesia, the Philippines, Thailand, Vietnam and Malaysia -- is projected at 5.9 percent this year, slightly down from 6.1 percent in 2012.

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