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As India, China take hit, Asia to see sharp slowdown: IMF

By Arun Kumar, IANS,

Washington : With the effects of the financial crisis now engulfing emerging markets of India and China too, growth in Asia is expected to slow sharply in 2009, the International Monetary Fund (IMF) says in its latest forecast.

“Growth in Asia is expected to slow substantially along with the rest of the world, as exports weaken and spillovers from the global financial turmoil weigh on domestic activity,” according to the IMF’s Regional Economic Outlook for Asia and Pacific released here Monday.

On an annual average basis, growth in Asia is projected to slow from 7.6 percent in 2007 to 6.0 percent this year and 4.9 percent in 2009, it said urging decisive actions to maintain financial stability and support growth in the region even as the global economy enters a major downturn.

“Emerging Asia” comprising China, India, Hong Kong, South Korea, Singapore, Taiwan, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam is projected to slow down from 9.5 percent in 2007 to 7.7 percent this year and 6.5 percent in 2009.

But if China, which is projected to slow from 11.9 per cent in 2007 to 9.7 percent this year and 8.5 percent in 2009 is excluded, the group’s growth comes down from 7.3 percent to 5.9 percent to 4.4 percent during the corresponding period.

And if China and India, which is projected to slow from 9.3 per cent in 2007 to 7.8 percent this year and 6.3 percent in 2009, both are excluded, Emerging Asia’s growth would further go down from 5.9 percent to 4.6 percent to 3.1 percent during the same time span.

“With the recent intensification of the global financial turmoil, any hopes that Asia would escape the crisis unscathed have evaporated,” said Jerald Schiff, a Senior Advisor in the IMF’s Asia and Pacific Department at a media briefing.

“Despite its strong fundamentals – notably a substantial cushion in external reserves and robust corporate and banking sectors – the region is being buffeted by large external shocks,” he added Schiff gave two key reasons for the slowdown:

– Global demand for Asia’s exports is waning, with the economies of the euro area, Japan, and the United States in a deep slump, and forward-looking indicators pointing to a sharper decline ahead

– The financial environment has become extremely challenging. Global deleveraging is contributing to tighter financing conditions, capital outflows, depressed equity prices, a weakening of a number of regional currencies, and higher sovereign and bank spreads.

Slowing economic growth and lower commodity prices are already contributing to moderating inflation, and the report expects a continued decline over the course of 2009, with headline consumer price inflation for the region falling from 6 percent this year to just over 3 percent in 2009.

While the baseline scenario for Asia sees recovery beginning in the second half of 2009, risks to the outlook are significantly larger than usual and tilted strongly to the downside, the report warned.

Despite Asia’s generally strong fundamentals, and large foreign exchange reserves, the region is “being rattled by the crisis due to its close trade and financial integration with the rest of the world.”

“In this difficult environment, policymakers need to focus on ensuring financial stability and the functioning of credit markets, while using macroeconomic policies to support growth,” Schiff said.

“Countries in the region have already taken a number of positive measures to stabilise financial conditions,” he noted.

“With inflation having peaked in most countries, there is room for further monetary policy easing. In addition, progress in fiscal consolidation in recent years will allow many countries to put in place stimulus packages.”