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October 11, 2013

IMF: Growth Prospects Weaken in Emerging Asia, Pacific Economies

by Mil Arcega

The International Monetary Fund says global growth patterns are shifting once again. The IMF’s latest outlook shows declining prospects for the Asia and Pacific regions - down collectively nearly 1 percent from initial forecasts earlier this year. For most countries, the impact should be partially offset by improving conditions in advanced economies. Fiscal and political problems in the U.S., though, continue to create uncertainty worldwide.

The IMF says the worst of the European debt crisis may be over, but tighter global liquidity and slow growth in China has dampened industrial activity in emerging countries in Asia and the Pacific.

IMF’s chief economist, Olivier Blanchard, said, “The good news is Europe seems to have started growth again. In emerging market economies, that’s where the bad news is."

China’s economy, which has been largely insulated from recent market volatility, will expand at a slower pace - 7.6 percent this year, slowing again to 7.3 percent in 2014.

India, where inflation is approaching double digits, is projected to grow 3.8 percent this year, down 2 percent from earlier forecasts.   

And Australia, which does a lot of business with India, likely will expand half a percent more slowly in 2013 - at two-and-a-half percent.

The bright spot is Japan, where heavy government stimulus appears to have lifted the country out of a deflationary cycle.

But IMF Managing Director Christine Lagarde said the ongoing political impasse in the world’s largest economy is complicating prospects for future growth.

“Obviously, we know and you know by now that failure to raise the debt ceiling would cause serious damage to the U.S. economy, but also to the global economy,” she said.

Unless Congress can reach agreement on the debt ceiling, the U.S. will run out of money to pay its obligations by October 17. If that happens, economists say financial markets will crash, interest rates will soar and the U.S. could slip back into recession.

Economist Erik Brattberg said many countries are worried. “They look at what’s happening in Washington right now and they wonder why this is happening? Why are they doing this? This is clearly not a good thing.  Why can’t they just work it out?”

The good news is that Washington lawmakers appear to be moving closer to a compromise.

Barring a calamitous U.S. default, the IMF says growth in emerging countries should strengthen, helped in part by increasing demand and growth in advanced economies.