I.M.F. cuts asia growth forecasts

PUBLISHED : Friday, 14 October, 2011, 12:00am
UPDATED : Friday, 14 October, 2011, 12:00am


The International Monetary Fund yesterday cut its growth forecast for Asia, warning there is 'no place to hide' from the domino effect caused by the euro zone's ballooning debt crisis and the economic stagnation in the United States.

In its latest Asia-Pacific Regional Economic Outlook, the Washington-based group now expects the region's gross domestic product to grow 6.3 per cent this year, compared with an earlier forecast of 6.8 per cent growth.

For next year, it expects growth of 6.7 per cent, against an earlier forecast of 6.9 per cent.

The forecasts are based on trade data collected up to the end of last month.

'The sell-off in Asian financial markets in August and September underscores that an escalation of euro-area financial turbulence and a renewed slowdown in the United States could have severe macroeconomic and financial spillovers to Asia,' the report said.

The MSCI Asia-Pacific Index of stocks fell 16 per cent in the past quarter in what the IMF described as 'panic sell-offs'. It was the biggest drop since the financial crisis in 2008.

Uncertainty over the 'haircut', or loss, faced by Greece's private creditors adds to global economic tension ahead of an October 23 summit to discuss a new Franco-German crisis plan.

Reuters yesterday quoted four unnamed euro-zone officials as saying that a haircut of between 30 and 50 per cent for Greece's private creditors was under consideration, significantly higher than the 21 per cent loss that banks, pension funds and other financial institutions were asked to accept in July as part of a second rescue package for Athens.

The IMF report warned larger losses at home could cause foreign banks to sell Asian assets, and cut credit lines in Asia. These could have a 'sizeable impact' on Asian economies with big exposures to European banks.

The IMF also urged Asian economies to step up efforts to rebalance their export-oriented economies and boost local consumption to sustain economic growth. Indonesia, for example, cut interest rates for the first time in more than two years to boost its economy. It also warned that Asia's policymakers could face a 'delicate balancing' act as they sought to curb inflation while also fostering consumption-led growth.

The IMF retained its September forecast for China's GDP growth of 9.5 per cent this year, and 9 per cent next year. These were first announced at the annual meetings of the IMF and World Bank, despite economists' concerns about China's property sector, credit tightening and non-performing loans.

But the IMF's September forecast was less bullish than its April forecasts, which predicted mainland GDP growth of 9.6 per cent this year and 9.5 per cent next ear.

Anoop Singh, director of the IMF's Asia and Pacific department, told a media briefing yesterday that China had the potential to offset part of the 'shock' in Asia caused by the worsening global slump.

If Asian countries, including China, were considering stimulus measures, they should focus on encouraging domestic spending rather than infrastructure, he said.

But Yao Wei, Societe Generale's chief Asia-Pacific economist, did not expect China to launch any large-scale stimulus package.