IMF scales back Asia growth forecast

By Anindya Mukherjee
Bloomberg News Service

U.S. demand for semiconductors, such as Hynix products from South Korea, will pick up, according to the International Monetary Fund. Asia's growth forecast is still higher than last year's 5 percent pace. Bloomberg News Service

Growth in the region, excluding Japan, will average 5.6 percent this year, the IMF said in its World Economic Outlook, scaling back a 5.9 percent forecast it made in October.

Still, growth will be higher than last year's 5 percent pace as U.S. demand for semiconductors, disk drives and other goods revives, the IMF said.

Oil prices, which have increased 30 percent this year because of violence in the Middle East, will dampen growth, while the shrinking Japanese economy and the yen's 7 percent drop in the past six months — which makes the rest of Asia's exports less competitive — will "add to weakness in the region," the IMF said.

The dimmer outlook suggests that a rebound in most Asian economies this year won't live up to investors' expectations. Investors have poured money into Indonesian, Thai, Korean, Philippine and Pakistani stocks, putting those countries' benchmark indexes among the world's 10 best performers this year.

China, South Korea and India will lead Asian growth this year, while the Hong Kong and Taiwan economies will expand at the slowest pace, the IMF said.

China's economy, Asia's largest outside of Japan, will expand by 7 percent this year, lifted by domestic demand and foreign direct investment, the IMF forecast.

Still, entry to the World Trade Organization will expose China's state-run companies to more foreign competition and cause imports to rise faster than exports, slowing growth from last year's 7.3 percent pace, according to the IMF report. China should allow its currency to trade more freely to provide a "buffer against external shocks," the IMF said.

To face stiffer competition after WTO entry, China's government needs to speed efforts to clean up "substantial" nonperforming loans at state banks, the IMF said.

Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China have shifted about 1.4 trillion yuan ($169 billion) of bad loans onto asset management companies, which are now trying to find investors for the debt.

South Korea's economy will probably expand 5 percent in 2002, the fastest of any industrialized economy, as rising global electronics demand joins domestic spending in buoying growth, the IMF forecast. The fund's growth forecast is still lower than the Korean central bank's 5.7 percent projection.

While growth in Indonesia, Thailand and the Philippines will accelerate this year, their economies are still dogged by the "structural problems" that dampened their recoveries from the 1997-98 Asian crisis, the IMF said.

Faster growth in the Southeast Asian countries will depend on "reforms needed to strengthen financial and corporate sectors, improve fiscal positions and boost international and domestic confidence," the report said.

India's economy, the second-largest in Asia outside Japan, will probably expand 5.5 percent this year as farm production and services expand, the IMF said. It expects Pakistani growth to accelerate to 4.2 percent from 3.4 percent as the conflict in Afghanistan subsides and overseas demand rebounds.