Asian growth easing, but Will Remain Strong

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Growth in Asia is forecast to decline by 1¼ percentage points to 6.2 percent in 2008 owing to the slowdown in advanced economies, but will remain buoyant-led by continued strong performances by China and India, says the April Regional Economic Outlook for Asia and Pacific.

"We see 2008 as a challenging year for Asia," said David Burton, Director of the IMF's Asia and Pacific Department. "Economic growth has held up well so far, but the region will not escape unscathed from the slowdown under way in the United States and, to a lesser extent, Europe.

"Already, exports to the United States and the European Union, and electronics exports in general, have begun to slow. Retail sales volume growth has declined in many countries, while industrial production and consumer confidence are easing in parts of the region," Burton told an April 11 press conference.

Inflationary pressures rising

But inflationary pressures are now strong or rising across most of Asia. Whereas the initial rise in headline inflation reflected supply-related food price shocks and higher global commodity prices, price increases are now starting to become more broad based.

Asian financial markets have not been immune to the global turbulence. Equities are sharply lower than at the beginning of the turmoil, although price-earnings ratios remain elevated, and spreads have risen substantially. Risk aversion remains high, and fund managers in the region have reportedly shifted allocations toward safer investments. However, Asian markets have functioned well overall, and there are few signs of a credit squeeze.

Key regional trends

The report identified the following key trends in the region:

Asian growth. Emerging Asia is forecast to slow from 9.2 percent in 2007 to 7.6 percent this year, before picking up modestly in 2009. Growth in China is projected to decline by about 2 percentage points this year, to 9.3 percent, mainly owing to slowing exports. And India's economy should cool as well, as lower investment brings overall growth to just below 8 percent. Economies with large trade and financial exposure to the United States and Europe-for example, Singapore and Hong Kong SAR-will also see significant declines. In industrial Asia, growth is forecast to decline by ½ percentage point to 1.7 percent in 2008, with growth in Japan falling from 2.1 percent to 1.4 percent over the same period.

Trade. Asia's trade...