Asia to Slow ‘Substantially’ as Exports, Demand Ebb, IMF Says
Asian economies will probably ease “substantially” as a global slowdown erodes demand for their exports, consumer confidence falters and banks restrain lending amid the credit crunch, the International Monetary Fund said.
Growth in Asia including Japan, Australia and New Zealand will probably slow to 4.9 percent next year, from a 5.6 percent pace predicted in October, the Washington-based lender said in a report today. The economies, which grew 7.6 percent in 2007, may expand 6 percent this year, the fund said.
“Asia is being rattled by the crisis as a result of its close trade and financial integration with the rest of the world, and any hope that the region would escape the crisis unscathed has by now evaporated,” the IMF said. “It remains unclear how domestic demand would stand up to a sharp decline in export growth and tighter financial conditions.”
The IMF this month lowered its global economic growth forecasts and predicted the first simultaneous contraction in the U.S., Japan and euro region since World War II. The worldwide slump has prompted policy makers to cut lending rates, announce spending packages and cut taxes to sustain growth.
Asian central banks and governments must be ready to “react decisively” in taking steps to maintain financial stability and sustain growth, the fund said, suggesting the use of monetary and fiscal tools to address the slowdown.
“Policy makers will need to remain vigilant in regard to spillovers from the global turmoil and be prepared to respond quickly and flexibly to a sharp slowing of domestic activity,” the fund said.
Lower Rates
China, India, South Korea, Taiwan and Vietnam are among countries in the region that have lowered borrowing costs in recent weeks.
“With inflation projected to moderate, monetary policy in most countries has room to ease to stabilize financial conditions and provide support to address significant downside risks,” the IMF said business cards. “Greater exchange-rate flexibility in some cases will provide more monetary-policy autonomy and help mitigate the impact of volatile capital flows.”
Asian governments and their counterparts around the world are spending hundreds of billions of dollars to protect their economies from the global financial crisis.
China this month announced a $586 billion economic stimulus plan, while South Korea unveiled a 14 trillion-won ($9.3 billion) package of extra spending and corporate tax breaks, adding to almost $20 billion in income-tax reductions announced in September.
Japan Spending
In Japan, lawmakers last month approved a 1.8 trillion-yen ($19 billion) supplementary budget as part of a stimulus package and Prime Minister Taro Aso promised Oct. 30 to pump an additional 5 trillion yen into the economy.
“Many countries would appear to have room for additional fiscal stimulus, which may prove necessary in particular should the current financial environment limit the effectiveness of monetary policy,” the IMF said.
China will expand 8.5 percent in 2009, slower than a previous forecast of 9.3 percent, the IMF said. India’s growth is estimated to be 6.3 percent next year, down from an earlier prediction of 6.9 percent, the report showed.
“With exports likely to fall sharply and the property sector weakening, risks to China’s outlook are firmly tilted to the downside,” the report said. In India, “growth is expected to decline as tighter financial conditions weigh on domestic activity, particularly investment.”
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