Asia growth will slow down.. as forecasted by IMF

Wednesday October 10, 2012 IMF cuts Asian forecast
Slowdown in Europe, US and China affect activities in the rest of Asia

HONG KONG: The IMF has 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% this year and 7.2% in 2013. That compares with July’s estimate of 7.1% this year and 7.5% 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% expansion this year, the IMF warned, but 8.2% next year as easing measures kick in. Both figures are lower than the July forecasts of 8% and 8.5% . “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% surge in 2011 and 10.4% 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% growth this year thanks to spending on post-tsunami work, but that would ease to 1.2% next year. In July the IMF forecast 2012 growth of 2.4% and 1.5% 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% this year and 6% 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, IMF chief economist Olivier Blanchard told reporters in Tokyo 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.” AFP

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