2012 Jan 27
January 27, 2012

IMF: Asean growth will be slower

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KUALA LUMPUR: The International Monetary Fund (IMF) expects Asean economies, including Malaysia, to slow because of the external headwinds and weakening internal demand.

The updated World Economic Outlook out of Washington on Tuesday has revised downwards its growth forecast for the Asean-5, which also includes Indonesia, the Philippines, Thailand and Vietnam, to 5.2 per cent for 2012.

Compared to its outlook four months ago, it now expects these economies to grow by 5.6 per cent in 2013.

During 2012 to 2013, growth in emerging and developing economies is expected at an average 5.75 per cent, a significant slowdown from the 6.75 per cent growth registered during 2010-2011 and about 0.5 percentage point lower than projected in the September 2011 WEO.

“This reflects the deterioration in the external environment, as well as the slowdown in domestic demand in key emerging economies,” the IMF said.

Despite a substantial downward revision of 0.75 percentage point, developing Asia, which includes China and India (and Asean-5), is still projected to grow most rapidly at 7.5 per cent on average in 2012-2013.

It said the recovery of the supply chain disruptions caused by the March 2011 Japanese earthquake was also stronger, while stabilising oil prices helped support consumption.

But these developments, it added, are not expected to sustain signi-ficant momentum.

“By contrast, growth in the emer-ging and developing economies slowed more than forecast, possibly due to a greater-than-expected effect of macroeconomic policy tightening or weaker underlying growth.”

The IMF said emerging and developing economies’ near-term policy should focus on responding to moderating domestic growth and to slowing external demand from advanced economies.

“Some emerging economies with low debt and deficits and declining inflationary pressure have room to make policy more supportive of economic activity.”

Emerging economies highly dependent on commodity revenues and external capital inflows also need to consider the risk of a large and protracted decline in these flows.

In September last year, the IMF revised down its growth projection for the Malaysian economy from 5.5 per cent to 5.2 per cent for 2011, and 5.1 per cent for 2012.

Supported by domestic demand, it expects Malaysia’s growth to be led by robust investment to offset the slowdown in export momentum.

The IMF warned that the risks to stability have increased, despite the various policy steps taken to contain the euro area debt crisis and banking problems.

The US and other advanced economies will be impacted by spillovers from the euro area crisis.

“Developments in the euro area also threaten emerging Europe and may spill over to other emerging markets. Further policy actions are needed to restore market confidence,” it added. By Rupa Damodaran

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