IMF cuts Asian growth forecast as West's crises bite

Posted at 10/09/2012 7:40 AM | Updated as of 10/09/2012 11:39 AM

HONG KONG - The IMF on Tuesday 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 cut the outlook on 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 busy week that will see the IMF and World Bank hold their annual meetings in Japan, ahead of a meeting of the Group of Seven.

The IMF forecast growth for Asia's developing economies to come in at 6.7 percent this year before rising to 7.2 percent in 2013. That compares with a prediction in July of 7.1 percent this year and 7.5 percent 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 sovereign debt crisis, which has tipped Europe into recession, and failure by US policymakers to avert a possible "fiscal cliff", could pile further problems on Asia.

China's huge economy, which has been a key driver of regional growth, will see just 7.8 percent expansion this year, the IMF warned, but would return to 8.2 percent growth next year as recent easing measures kick in.

Both figures are lower than the July forecasts of 8.0 percent and 8.5 percent respectively.

"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 that "a return to double-digit growth in China (is) unlikely" as the country's leaders try to balance its huge export sector by encouraging domestic demand.

The numbers are well down from the 9.3 percent surge in 2011 and 10.4 percent in 2010.

China's leaders have tried to spur growth by slashing interest rates twice this year and cutting the amount of funds banks must keep in reserve.

But the IMF said: "This easing, however, has not yet gained the traction expected earlier in the year."

In Japan the IMF tipped 2.2 percent growth this year owing to huge spending on post-tsunami work, but said that would ease to just 1.2 percent next year. In July it tipped 2012 growth of 2.4 percent and 1.5 percent in 2013.

The Fund did say that monetary easing would support the economy but further measures would likely be needed to fight the painful deflation that has racked the Japanese economy.

There have also been growing fears about the impact of a territorial feud between China and Japan on the world economy. Earlier this month IMF chief Christine Lagarde said the dispute could not be allowed to fester.

Speaking to Japanese media, she said the two economic powerhouses should show some neighbourly tolerance for the good of the whole world.

"The current status of the economy and the global economy needs both Japan and China fully engaged," Lagarde said.

India, Asia's third-largest economy, is seen growing just 4.9 percent this year and 6.0 percent 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.

Slowing demand from overseas was also blamed for broadly weaker growth in three of Southeast Asia's five biggest developing economies -- Indonesia, Thailand, Malaysia, the Philippines and Vietnam.

The report said only the Philippines and Thailand would see improvement this year compared with 2011, with the latter boosted by reconstruction and investment after devastating floods hit the country's north.

However, overall the five would enjoy growth of 5.4 percent this year and 5.8 percent next year. Last year saw growth of 4.5 percent.

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