The International Monetary Fund has lowered 2012-13 growth forecasts for
Asia, cutting its April forecasts by 0.5 percentage point on both years to 5.5
per cent and 5.75 per cent respectively.
Overall, growth in the Asean-5
(Indonesia, Malaysia, the Philippines, Thailand and Vietnam) is projected to
accelerate slightly to 5.75 per cent in 2013, up from about 5.5 per cent in
2012. The Thai economy in particular is expected to expand 5.6 per cent this
year thanks to post-flood reconstruction, before rising to 6 per cent next
year.
Though the growth rate is above
the average global forecast of 3.3 per cent and 3.6 per cent in light of the
euro area crisis and US "fiscal cliff", the IMF reckoned the near-
and medium-term outlooks were less buoyant.
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,
with a return to double-digit growth in China's gross domestic product unlikely
given the policy objectives laid out in Beijing's 12th Five-Year Plan.
"Weaker external demand is
the main factor underpinning generally modestly weaker growth in the Asean-5
economies in 2012. The main exception is Thailand, where growth has bounced
back sharply, led by reconstruction and investment after the devastating floods
in October 2011," the IMF said in the latest "World Economic
Outlook" (WEO) launched yesterday in Tokyo ahead of the IMF-World Bank annual
meetings.
GDP growth in China is projected
to be about 7.75 per cent this year and then to strengthen to 8.25 per cent in
2013 as domestic demand growth, especially investment growth, picks up with the
policy easing now under way.
Growth in India is projected to
average 5-6 per cent in 2012-13, more than 1 percentage point lower than in the
April WEO.
In Japan, growth is expected to
reach almost 2.25 per cent in 2012. Much of the recent strength is attributable
to reconstruction activity and some rebound in manufacturing activity in the
first half of the year after the supply shocks associated with the March 2011
earthquake and tsunami and the Thai floods late last year.
GDP
The effects of these factors will
fade, however, and GDP growth is projected to moderate to 1.25 per cent in
2013.
"The balance of risks to the
near-term growth outlook is tilted to the downside, reflecting external and, to
a lesser extent in the near term, internal risks to the region," the IMF
said.
In the short term, a further
escalation of the euro-area crisis and failure to address the US fiscal cliff
are the main external risks for the region. If these risks were to materialise,
Asia's open, trade-oriented economies would be faced with lower external demand
and other spillovers, for example, on confidence, and growth could be
substantially lower.
However, emerging Asia, like
other emerging markets, has become |more integrated with global financial
markets.
With increased exposure,
volatility in global capital markets also can have larger effects, including
through-effects on exchange rates as illustrated by safe-haven effects and the
recent appreciation of the yen.
Among internal risks to the
region, lower-than-expected growth in emerging Asia in the medium term is a key
risk.
The housing boom and similar
temporary factors in the major advanced economies may have contributed to the
recent strong growth performance in the region. China experienced booms of its
own in residential real estate and investment, which accelerated during 2009-10
subsequent to macroeconomic policy stimulus actions taken in response to the
global financial crisis.
Strong credit growth has
supported demand across emerging-market economies more broadly, including in
Asia, but cannot continue at its recent pace without creating large financial
stability risks, the report said.
"In the event of
simultaneous lower potential growth in emerging Asia and in other regions, the
impact on growth would be sizeable in Asia, as would be the outward spillovers
on commodity exporters.
"A related risk is that the
recent surge in investment in China could be reversed and result in a
sharper-than-expected investment slowdown in the future. Such a shock would
strongly affect economies in the highly interlinked Asian supply chain - for
example, Korea, Malaysia, Taiwan and Thailand - including indirectly through
the large effects on other major manufacturing exporters, especially Germany
and Japan."
The IMF urged policy-makers to
strike the right balance between managing external and internal risks and
orchestrating a soft landing.
External risks have been more
pressing, and the recent shift towards monetary easing across much of the
region seems appropriate for most economies, given decelerating inflation in
both advanced and emerging Asia.
The IMF also took the view that
some economies - Asean-5, mainland China and South Korea - still had fiscal
space to allow automatic stabilisers, should risks materialise.
Structural fiscal-policy reform
is needed in a number of economies in the region. In a number of Asian
economies - including mainland China, South Korea, Malaysia, Singapore and
Thailand - current-account positions are stronger and currencies are weaker
than they would be with a more desirable set of policies.
Against the risks of
deteriorating credit quality while growth is slowing, the report said,
policy-makers in many Asian economies are advised to guard against
financial-stability risks arising from recent rapid credit growth, including by
closely monitoring balance-sheet health and funding conditions in the banking
and shadow banking systems. In the event of global or local liquidity
shortages, central banks should stand ready to backstop liquidity.
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