Thursday, October 9, 2008

Emerging Asia faces fallout from West's woes-IMF

WASHINGTON, Oct 8 (Reuters)

Emerging Asia faces weaker economic growth prospects in the coming year amid slowing demand and financial turmoil in Western economies, the International Monetary Fund said on Wednesday.

'More weakness is expected ahead in response to slowing demand from advanced economies and growing strains in regional financial markets,' the IMF said in its twice-yearly World Economic Outlook report.

'The main concern is that a buildup of stress in the global financial system and a sharper-than-anticipated global slowdown could further weigh on activity,' it said.

Regional locomotives China and India will also experience slower growth on weaker exports, but should continue to be supported by solid private consumption, it said.

Growth in China is likely to come in at 9.7 percent this year, and 9.3 percent in 2009 -- compared to 11.9 percent in 2007, the IMF said. India will grow 7.9 percent this year and 6.9 percent in 2009, off from 9.3 percent in 2007, it said.

POLICY DILEMMA

In newly industrialized Asian economies and the 10 Association of Southeast Asian Nations states 'domestic demand has softened, as rising food and fuel prices have started to weigh on consumption, while declining profit margins and weakening demand have prompted firms to scale back their investment plans,' the IMF said.

'Financial markets have weakened in recent months, driven by increasing concerns about the global outlook and declining investor risk appetite, particularly in the context of the September market turbulence,' said the report.

The two biggest newly industrialized economies, South Korea and Taiwan, will see growth moderate, with South Korea's economy expanding 4.1 percent this year and 3.5 percent in 2009. Taiwan will see 3.8 percent growth in 2008 and 2.5 percent next year, it said.

Across the region, current account balances have come under pressure from rising import bills for oil, food and other commodities and slowing export growth, the IMF said. Investment will also moderate on deteriorating export prospects, while consumption will ease because of high fuel and food prices, it said.

Food price and fuel prices caused headline CPI inflation to rise sharply in a number of Asian countries, but indicators of underlying inflation pressure have risen to a lesser extent, the report said.

India remains vulnerable to second-round inflation effects as a result of high resource utilization and robust credit growth, the IMF said.

'A major policy dilemma for the region is how to respond to the weakening growth outlook and global financial turbulence, without losing sight of inflation risks,' said the report.