By Arun Kumar
Washington: Weaker momentum in Asia’s growth engines, China and India, coupled with setbacks in the recovery in advanced economies, has slowed down growth in the region, the International Monetary Fund (IMF) said Friday.
For Asia as a whole, GDP growth fell to its lowest rate since the 2008 global financial crisis during the first half of 2012 averaging 5.50 percent though still well above the global average, it said.
“External headwinds played a major role, as the recovery in advanced economies suffered setbacks,” IMF said in its October update of the Asia and Pacific Regional Economic Outlook released during the World Bank-IMF Annual Meetings in Tokyo.
“Weaker momentum in China and India also weighed on regional economies,” it said with domestic factors contributing to the slowdown in both countries.
While in the case of India, weakening investor sentiment adding to supply constraints contributed to the slowdown, in China it was due to what IMF called “deliberate efforts to engineer a soft landing.”
Asia’s growth is unlikely to pick up in the second half of 2012 as was expected in the April 2012 regional outlook, given the recent deterioration of a broad range of indicators encompassing activity variables from industrial Asia, the large emerging Asia growth leaders, and the smaller export-dependent economies, IMF said.
Overall, after having slowed in 2011, Asia’s growth is forecast to moderate further in 2012 to 5 percent, about 2 percentage points below 2011 and IMF April 2012 forecast.
That said, Asia will remain the global growth leader, expanding over 2 percentage points faster than the world average, IMF said.
A modest growth pickup to about 6 percent in 2013 could result mostly from strengthening external demand-itself helped by the recent actions taken by leading central banks- with accommodative macroeconomic policy stances across the region also playing a role, it said.
While relatively strong economic and policy fundamentals have helped buffer Asian economies against adverse financial market spillovers, aggressive deleveraging by euro area banks and flight of capital to traditional safe havens could also severely disrupt Asian financial systems.
Policymakers need to support stable noninflationary growth, maintain financial stability, and lay the foundations for sustained and shared prosperity over the medium term, IMF said.
But it acknowledged that some countries including India still-high inflation may limit the room for policy manoeuvre.