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China, Japan slowdowns 'a risk to Asia'

Publication Date : 29-04-2014

 

Slower growth than expected in China or Japan, both of which are undergoing economic restructuring, is among the key risks to Asia this year, according to the International Monetary Fund (IMF).

Its regional economic outlook released yesterday identified potential growth slowdowns in Asia's two largest economies as possible threats to the region's otherwise steady expansion.

"A sharper-than-envisaged slowdown in China - due to financial sector vulnerabilities and the temporary cost of reforms along the transition towards a more sustainable growth path - would have significant adverse regional spillovers," it said.

China's economic growth slowed to an 18-month low of 7.4 per cent in the first quarter of the year on a broad-based decline across several industries.

"In Japan, there is a possibility that Abenomics-related measures could prove less effective in boosting growth than envisaged unless strongly supported by structural reforms," the IMF added, referring to the economy-boosting policies implemented by Prime Minister Shinzo Abe.

For now, the organisation is projecting robust growth for the region as domestic demand stays solid and external demand looks likely to pick up alongside rebounding developed economies.

The IMF believes Asia will grow 5.4 per cent this year and 5.5 per cent next year - in both cases a rise of 0.1 percentage point from its last report in October.

It expects Singapore's economy to expand by 3.6 per cent this year, up 0.2 percentage point from its October forecasts, and to maintain this pace of growth next year.

The IMF, however, slashed its forecast for Thailand by 2.8 percentage points to 2.5 per cent this year.

"Political tensions have hurt sentiment and will slow the economy in the first half of 2014 as private demand weakens and public investment plans are delayed," it said.

The organisation also noted that while the growing level of regional integration has propelled Asia's growth, it could also "amplify the impact of global and regional shocks".

For instance, Asia is now twice as exposed as other regions to growth shocks originating from China, the IMF observed.

"As trade and financial integration continue to grow, policymakers need to seek out ways to maximise the growth benefits while preparing to manage the vulnerabilities arising from the expanding channels for spillovers," it said.

They should also keep their eye firmly on structural reforms, the IMF added.

In India and Asean, these include regulatory and infrastructure improvements. China needs to open up its financial system, and Japan should look at labour market reforms.

"These reforms are critical not only to sustain Asia's growth leadership over the medium term but also, in some cases, to maintain investor confidence and secure financial stability in the near term," the IMF said.

 

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