IMF predicts long, severe recession for Asia

SINGAPORE: The International Monetary Fund (IMF) on Wednesday sharply slashed its growth outlook for Asia, predicting a “long and severe recession” for the region’s wealthier but export-reliant economies.

The US-based institution said it now expected growth in Asia, including Japan, would slow to 1.3 percent this year after an initial forecast, made in the last quarter of 2008, of 2.7 percent growth.

“The spillovers from the global crisis have impacted Asia with unexpected speed and force,” the IMF said in its regional economic outlook.

“Prospects for an imminent rebound of economic activity are weak,” it said, underlining that the region is still heavily dependent on exports at a time when demand has weakened because of the global downturn.

It said it now expected 4.3 percent growth in 2010, down from an initial forecast of 4.5 percent.

For emerging nations in Asia, which excludes Japan, the IMF lowered its growth forecast to 3.3 percent from 4.4 percent. It put 2010 growth at 5.4 percent, down from an initial 6.0 percent.

The region’s wealthier economies “are expected to experience a long and severe recession” because of their heavy reliance on high-tech exports and extensive exposure to the global financial system, the IMF said.

It urged Asia to “rebalance” its growth model and focus more on spurring domestic demand.

The export-led model of economic growth “may not pay the same dividends as in the past” as households in advanced economies are now expected to be more careful about expenses in the face of the worldwide slowdown.

“The current crisis vividly illustrates that, far from having ‘de­coupled’ from the global economy, Asia has experienced accelerator effects at work,” the IMF said.

“Despite governments’ efforts to invigorate domestic demand, the prospects of a recovery at this stage hinge critically on a rebound in global activity.”

Asia’s largest economy, Japan, is projected to shrink 6.2 percent this year, far worse than last year’s contraction of 0.6 percent.

Within Southeast Asia, the IMF report said that Malaysia, the Philippines and Thailand would be affected more severely than other nations by the global slowdown due to their heavier reliance on high-tech exports.

Asia encourages to inject stimulus package

As private capital inflows would become negative this year, the International Monetary Fund (IMF) encourages Asian economies to ensure that the stimulus package would be injected this year to support economic growth.

In IMF’s Regional Economic Outlook (REO) report in Asia and Pacific, the multilateral agency said the Asian economies should inject the stimulus package this year given that the private domestic demand particularly private investment and consumption would remain subdued this year.

Only a few Asian countries have announced packages for 2010, creating the public perception that stimulus might be withdrawn at a time when economies are likely to remain very weak.

The Philippine government has committed to spend P330 billion for infrastructure investment and social services under the Economic Resiliency Plan for this year.

The government has increased its budget deficit program to P199.2 billion, or 2.5 percent of gross domestic product (GDP), the amount of goods and services produced.

IMF projected a flat GDP growth for the Philippines this year due to the 7.5- percent drop in remittances, which contributes 10 percent of GDP, this year.

In terms of investments, IMF expects Asian economies to return into pre crisis investment growth rate after one year and a half particularly those with large exposure to advanced economies.

Overall, net private capital outflows from emerging Asia are expected to amount to + percent of GDP in 2009, about one third of the outflows experienced during, the Asian crisis in 1998.
— AFP AND Maricel E. Burgonio, Manila Times