Singapore: The International Monetary Fund (IMF) on Wednesday sharply slashed its growth outlook for Asia, predicting a “long and severe recession” for the region’s wealthier but export-reliant economies.
The US-based institution said it now expected growth in Asia, including Japan, would slow to 1.3% this year after an initial forecast, made in the last quarter of 2008, of 2.7% growth.
“The spillovers from the global crisis have impacted Asia with unexpected speed and force,” the IMF said in its regional economic outlook.
Cloudy outlook: The IMF building in Washington. IMF warned sustained growth won’t return to the Asia-Pacific region before 2010. Joshua Roberts / Bloomberg
“Prospects for an imminent rebound of economic activity are weak,” it said, underlining that the region is still heavily dependent on exports at a time when demand has weakened because of the global downturn.
It said it now expected 4.3% growth in 2010, down from an initial forecast of 4.5%.
For emerging nations in Asia, which excludes Japan, the IMF lowered its growth forecast to 3.3% from 4.4%. It put 2010 growth at 5.4%, down from an initial 6.0%.
The region’s wealthier economies “are expected to experience a long and severe recession” because of their heavy reliance on high-tech exports and extensive exposure to the global financial system, the IMF said.
It urged Asia to “rebalance” its growth model and focus more on spurring domestic demand.
The export-led model of economic growth “may not pay the same dividends as in the past” as households in advanced economies were now expected to be more careful about expenses in the face of the worldwide slowdown.
“The current crisis vividly illustrates that, far from having ‘decoupled’ from the global economy, Asia has experienced accelerator effects at work,” the IMF said.
“Despite governments’ efforts to invigorate domestic demand, the prospects of a recovery at this stage hinge critically on a rebound in global activity.”
Asia’s largest economy, Japan, is projected to shrink 6.2% this year, far worse than last year’s contraction of 0.6%.
The Japanese economy is expected to return to growth in 2010 with an expansion of 0.5%, the IMF said.
It meanwhile said growth in China was expected to be 6.5% this year and 7.5% in 2010, and forecast 4.5% growth in India for 2009 and 5.6% the following year.
Within Southeast Asia, the IMF report said that Malaysia, the Philippines and Thailand would be affected more severely than other nations by the global