IMF Cuts Asian Economic Growth Forecasts

The International Monetary Fund (IMF) has warned that Asia’s economic growth will be hurt by the spiraling debt crisis in the Eurozone and by renewed fears about the U.S. economy.

The Fund said gross domestic product (GDP) growth across Asia will average 6.3 percent in 2011, and 6.7 percent in 2012 (in April, the IMF forecast nearly 7 percent growth for both years).

“Growth in Asia has moderated since the second quarter of 2011, mainly reflecting a weakening of external demand,” the IMF said in a report released Thursday.

“An escalation of the euro area financial turbulence and a more severe slowdown than anticipated in the United States would have clear macroeconomic and financial spillovers to Asia. While domestic demand remains strong, Asia has clearly not decoupled from advanced economies.”

Risks in Asia are decidedly tilted to the downside due to deepening weakness in its two principal export markets: Europe and North America.

As a result, overseas may spurn Asian markets, thereby reversing two straight years of heavy capital inflows into the region, the Fund cautioned.

Asian policymakers, the IMF asserted, are thus faced with a delicate balancing act.”

They [Asian economic officials] need to guard against risks to growth but also limit the adverse impact of prolonged easy financial conditions on inflation, the IMF noted. “Asian policy makers need to balance growth considerations against inflation and balance sheet risks from prolonged easy financial conditions.”

While inflation remains high in several Asian nations, the IMF believes consumer prices should start to decline after peaking this year, as food and energy prices gradually moderate.

On a more optimistic note, the IMF reminded that Asian countries have taken comprehensive reforms over the past decade to strengthen their financial, corporate and public sector balance sheets that are now providing strong buffers for the renewed global uncertainties.

“Thus, if the downside risks to the global outlook were to materialize… Asian economies have the scope to reverse course and use a range of measures to cushion the impact on economic activity, as many did in response to the global crisis in 2008,” the Fund concluded.