IMF says Asia less vulnerable to shocks in global market

In light of the ongoing sub-prime mortgage crisis in the United States, major global agencies have relooked their forecasts for this year.

According to the latest World Economic Report, the International Monetary Fund (IMF) is predicting a 3.7 percent growth in the global economy this year – down from a 4.9 percent expansion in 2007.

The IMF has also downgraded its growth projections for Singapore by expecting the economy to grow by just 4 percent this year. It also said home prices in the US could see a further slide.

Charles Collyns, Deputy Director, Research Department, IMF, said: “We are more concerned about the household sectors because of the impact of the housing correction.

“We’ve seen a 10 percent reduction in house prices on the index last year and another 10 percent could be on the way this year. That’s a 20 percent reduction in housing prices and that will have an effect on household balance sheet and will tend to dampen household’s willingness to spend going ahead.”

And according to the IMF, this will have a deep impact on the US economy and could even lead to a contraction.

It has projected that the US is likely to face a mild recession this year, with a possible recovery towards the end of 2009.

Although there are some downside risks, the IMF said according to its forecast, there is only a one-in-four chance of a global recession. That is partly because growth in Asia is expected to hold up, albeit at a slower pace.

For Singapore, the IMF has cut its 2008 growth projections from 5.8 percent to 4 percent.

On the whole, it said emerging Asia will be less vulnerable to shocks in the market, compared to a decade ago.

Ranil Salgado, Resident Representative, Singapore, Asia & Pacific Department, IMF, said: “Most of these countries run substantial trade surpluses and they have large foreign reserves… Policy steps in Asia have created some space for policy adjustments in the event that large downside risks do materialise.”

Besides the slowdown in the US, the IMF has warned that Asian economies need to address the concerns of inflationary pressures on food and oil.

This includes re-thinking biofuel policies and boosting agricultural output to meet rising demand. – CNA/so

Source : Channel NewsAsia – 21 Apr 2008

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