By John Sexton
Hit by falling demand for its exports, tighter financing conditions, capital outflows and depressed equity markets, Asia is facing "sharply slowing growth and increased vulnerabilities." according to the International Monetary Fund's November 2008 regional economic outlook. The fund cut its 2009 Asian growth forecast from 5.6 percent to 4.9 percent. Its full year projection for 2008 is 6 percent, down from 7.6 percent in 2007.
The Fund cut its 2009 growth forecast for China by 0.8 percent to 8.5 percent and warned that the country's weakening property sector is a risk factor for the economy. It added that economic outcomes in China would depend heavily on the success of the government's 4 trillion yuan fiscal stimulus package. Full year growth for 2008 is expected to be 9.7 percent, down from 11.9 percent in 2007.
The IMF attached a strong health warning to its figures, saying that the financial turmoil made the margin of error wider than usual, and added that its growth predictions are more likely to be revised downwards than upwards.
"Risks to this outlook are unusually large and tilted squarely to the downside. A sharper than expected slowdown, and a more protracted period of financial turmoil could raise pressures on corporates and households contributing to a rise in bad loans and risking an adverse cycle of tightening credit conditions and deteriorating growth," said Jerald Schiff, Senior Advisor at the Asia Pacific Department of the IMF
For emerging Asia (excluding industrial Asia - Japan, Australia and New Zealand) the Fund sees annual growth falling to 6.5 percent in 2009, down from an expected 7.7 percent in 2008, and a full 3 percentage points lower than the 2007 figure of 9.5 percent. It expects industrial Asia growth to fall from around 1 percent in 2008 to near zero in 2009.
The Fund said collapsing commodity prices are set to take inflation across the region back to 2007 levels, with Japan experiencing a short period of deflation. It expects 2009 headline inflation of 3.1 percent for Asia as a whole, 4.0 percent for emerging Asia, and 0.4 percent for industrial Asia. The 2009 headline inflation figure for China is expected to be 3.4 percent, down from a projected 6.2 percent for 2008.
(China.org.cn November 25, 2008)