IMF sees ‘downside’ risks to Asia from euro crisis
The IMF lowered its forecasts for Asian growth and warned in a report
Thursday that the region faces downside risks due to worries over the
eurozone debt crisis and a slowdown in the United States.
In its twice-yearly Asia and Pacific Regional Economic Outlook, the
International Monetary Fund warned that risks for the region are
‘decidedly tilted to the downside.’
The IMF expects growth of 6.3 percent in 2011 and 6.7 percent in 2012
for Asia on average, slightly below its forecast of 6.8 percent and 6.9
percent respectively in April’s report.
It warned that any escalation in the European sovereign debt crisis
would have ‘clear macroeconomic and financial spillovers’ to Asia as the
region’s economy has clearly not ‘decoupled’ from advanced economies.
Asian financial markets
“The panic sell-offs across Asian financial markets and safe-haven
flows into Japan that occurred when European troubles intensified in
August-September 2011 demonstrate that there is ‘no place to hide’ when
advanced markets come under pressure,” the IMF said.
“Since 2009 investors from advanced economies have built up
substantial positions in Asian markets, including Indonesia and other
Asian sovereign debt markets,” it said.
“A sudden liquidation of these positions could trigger a loss of
confidence, and contagion could spread from bond and equity markets to
currency and other markets.” Asian policy makers faced a ‘delicate
balancing act’ to guard against risks to growth but also limit “the
adverse impact of prolonged easy financial conditions on inflation”.
The IMF noted that inflationary pressures were ‘elevated’ in a number
of Asian economies due to accommodative monetary policies, but should
ease off as food and energy prices ‘gradually moderate’.
Greek protesters |
Tax reforms
While noting that growth in Asia has eased since the second quarter
of 2011, mainly reflecting weakening external demand, the IMF said
domestic demand is still resilient and should continue to sustain
activity across the region.
In Japan, the March 11 earthquake and tsunami “had grave social and
humanitarian costs and also set back the recovery,” the IMF said.
However, “domestic demand is picking up as reconstruction efforts get
under way” towards reaching the 2.3 percent growth it forecast for Japan
for 2012, it said.
The IMF called on Japan to make further efforts to reduce its massive
public debt through limiting spending growth and comprehensive tax
reforms.
It welcomed the government’s plan to double the consumption tax to 10
percent by the middle of the decade and adjusting pension benefits but
said “more needs to be done to put the net debt-to-GDP ratio on a
downward path.”
Japan’s public debt is one of the world’s highest at more than 200
percent of gross domestic product. AFP |