Business

Thursday May 7, 2009

IMF sees 2010 Asian growth at 4.3%


SINGAPORE: Economic growth in Asia could recover next year to somewhat below potential rates but that forecast is subject to downside risks and depends on monetary and fiscal conditions remaining accommodative for a while, the International Monetary Fund said yesterday.

The IMF’s projections are for Asia’s growth to pick up to 4.3% in 2010 from an estimated 1.3% in 2009, which would be below potential and below the 5.1% in 2008.

The forecasts were released three weeks ago as part of the IMF’s World Economic Outlook following the IMF spring meeting but the organisation released commentary on the region yesterday in its twice-yearly regional economic outlook for Asia and the Pacific.

The IMF said that risks to the outlook were tilted to the downside and relied on a recession-hit global economy stabilising after the credit crisis.

“There are risks that financial strains will become deeper, and that macroeconomic policy support is withdrawn prematurely.

“In this case, the global downturn could continue to deepen. This would make it even more difficult for Asia to recover,” the IMF said.

A second risk, the IMF said, was that corporate losses, which it now believes will remain manageable, could surge due to continued weak demand and tighter financial conditions, thereby hurting banks and leading to higher unemployment.

Another risk was from global deleveraging which could limit the access to external financing for companies and governments.

Finally, over a longer horizon, export-driven Asian economies are exposed to the risk of a structural decline in demand from advanced economies, the IMF said.

The IMF said the one significant boon for the region would be stronger than anticipated policy responses, which would help Asia emerge faster from the recession and whose costs were potentially low given the absence of inflationary pressures.

It said many economies still had room for additional interest rate reductions.

“The impact of the aggressive cuts in interest rates so far has been largely offset by declining inflation expectations, so that real interest rates have remained relatively constant, or have increased, in a number of countries,” it said.

Overall financing conditions had in some countries actually tightened over the past year, threatening to put additional pressure on growth, the IMF said.

It suggested more Asian governments may need to turn to unconventional measures to improve access to credit, like South Korea and Japan had done, by expanding balance sheets through tools such as purchasing longer term instruments or providing guarantees to bank lending. – Reuters

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