Asia-Pacific nations including the world’s most populous, China, have scope to boost spending and cut borrowing costs to protect their economies if the global slowdown worsens, an International Monetary Fund (IMF) official said.
“Most economies in Asia have room for a strong policy response,” Anoop Singh, the IMF’s Asia-Pacific department chief, told reporters in Washington. “Asian economies have proven generally resilient to this turbulence in global markets and they are helping support global growth.” Still, there is still a risk of contagion, he said.
While still the driver of global growth, emerging markets including China are seeing weaker exports as Europe fails to quell its sovereign debt crisis.
The IMF last week cut its forecast for developing Asia to 7.3 per cent in 2012 from a September estimate of eight per cent and warned the world could be plunged into another recession if Europe’s woes worsen.
Singh said China, which he doesn’t expect to experience a “hard landing,” has room to boost fiscal spending while India, which raised the repurchase rate 13 times in the past two years to 8.5 per cent, should lower its fiscal deficit. In Japan, the central bank can accelerate asset purchases, he said, while Australia has more fiscal and monetary policy flexibility than almost any other developed nation.
Driving Australia’s gross domestic product are exports of iron ore and coal. The nation sends about a quarter of its overseas shipments to China, the world’s second-largest economy, whose largest export market, in turn, is Europe.
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‘Very welcome’
The recent decline in external surpluses in China and many Asian economies “is certain very welcome,” Singh said.
China’s export growth slowed in December, with overseas shipments rising 13.4 per cent from a year earlier after a 13.8 per cent increase in November, data from the Beijing-based customs bureau showed January 19.
“So far some of the reduction we’re currently seeing, is perhaps more of a reflection of temporary factors such as strong domestic investment and of course weak external demand,” Singh said, referring to China.
“Therefore it is very important that we see, as the authorities want to establish, policies that strengthen domestic consumption that will ensure that a recent decline in the current-account surplus is sustained over the medium term,” he said. Singh declined to comment when questioned on the value of the yuan.
‘Substantially below’
The IMF in its annual assessment of China’s economy published in July pressed for gains in the yuan, saying the currency “remains substantially below the level consistent with medium-term fundamentals.”
In a more recent report prepared for a January 19-20 meeting of Group of 20 officials, the IMF staff said that the currency had been allowed to appreciate “faster than in the past,” and that the pace of accumulation of foreign-exchange reserves had slowed since a G20 meeting of leaders in November.
“The authorities need to continue to allow the exchange rate to appreciate closer to equilibrium and to move ahead with financial sector reform,” according to the staff report.
Nations including Malaysia, New Zealand and Thailand have reduced interest rates or left them unchanged in recent meetings to shield their economies from the protracted European turmoil.
The fund predicts global growth of 3.3 per cent this year from a September forecast of 4 per cent. The expansion next year will be 3.9 per cent, down from 4.5 per cent. The euro area may enter a “mild recession” in 2012 as it shrinks 0.5 per cent. The US outlook was unchanged at 1.8 per cent growth.
China’s estimated expansion was cut to 8.2 per cent from nine per cent. India is expected to grow 7 per cent in 2012, 0.5 percentage point less than in September forecasts.
The Reserve Bank of India lowered the cash-reserve ratio for banks to 5.5 per cent from six per cent on January 24.