Ecnomy-Finance

Lower External Demand Results in Slower Growth for Asia

Thursday, February 2, 2012

Tokyo- (PanOrient News) Lower demand for exports from Asia is acting as a drag on growth in the region, but Asian economies continue to hold relatively firm buoyed by continuing strong domestic demand, International Monetary Fund (IMF) experts said.

“Exports [in Asia] lost momentum in the face of weaker growth from regional and global trading partners, but robust domestic demand has, so far, helped offset the drag on growth,“ said Anoop Singh, head of the Asia and Pacific region for the IMF, during a press briefing on the economic outlook for Asia.

Asia is heavily dependent on trade for its growth and, although up till now, the region has managed to fend off the worst effects of the euro debt crisis, Singh warned that a further deterioration in global financial conditions could have significant, negative knock-on effects.

“Clearly Asia would be greatly affected as standard trade-channel effects would combine with confidence effects and contagion in the financial sector to produce large and tangible spillovers to domestic demand,” said Singh.

Slowing global economy mirrored in Asian markdown

The IMF expects growth in Asia to remain close to 6 percent this year, and then to gradually recover to about 6½ percent in 2013.

These projections follow last week’s release of the IMF’s latest World Economic Outlook which saw a reduction in expected global growth to 3.3 percent for this year—down ¾ percentage points since its last projections in September. This has had a negative impact on growth expectations for Asia.

The IMF expects developing Asia to grow at 7.3 percent this year. It had originally projected this figure to be 8 percent, and although China is predicted to grow at a robust 8.2 percent in 2012, this is still 0.8 percentage points down on expectations from last year.

Room for policy response

In the event of a further global slowdown, Singh told journalists that most countries in the region had room for a strong policy response.

China and many of the more export-dependent economies in the region could have a more accommodative fiscal policy, while Japan's central bank could boost its asset purchases, he said. Singh added that continued rebalancing efforts to trim external surpluses would reduce exposure to outside risks and support the global economy.

“Economic rebalancing and strengthening domestic sources of growth continue to be a policy priority for much of Asia” said Singh.

“In some countries this may involve reforms to boost consumption by building social safety nets and liberalizing the financial system, while in others there is a need to improve the conditions for private investment, addressing infrastructure bottlenecks, and enhancing governance and public service delivery,” he said.

Looking ahead, Singh noted that it was an important year for the IMF in Asia. The IMF and the World Bank are due to hold their Annual Meetings in Tokyo this October. Singh said the choice of venue reflected the critical role of Japan and Asia in the world economy, “as well as the IMF’s growing and constructive partnership with the region.”

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