DUBAI, 19 September 2003— Asia Pacific countries will have the world’s fastest growing economies this year with further expansion in 2004, according to the International Monetary Fund’s (IMF) World Economic Outlook for September.
But IMF economists speaking ahead of a meeting in Dubai warned that the growth was partly due to undervalued rates of Asian currencies to the dollar that could lead to a “serious” global economic problem in the medium term.
The IMF’s economic outlook said the Iraq war, the subsequent surge in oil prices and the outbreak of Severe Acute Respiratory Syndrome (SARS) that killed more than 900 people worldwide, had combined to stifle the region’s economies.
“(But) despite the slowdown since early 2003, the Asia Pacific countries are again set to be the world’s fastest growing region this year and growth is expected to pick up further in 2004,” the IMF’s report said.
China, Vietnam and other nations the IMF describes as having formerly centrally planned economies are tipped to have the strongest performances in Asia, with an average 7.4 percent growth rate in 2003. Growth in these countries, including Cambodia and Laos, is expected to be 7.5 percent in 2004.
South Asia fares next best with average growth of 5.5 percent in 2003, and with India leading the way at 5.6 percent. For 2004, the IMF predicts a South Asian growth rate of 5.8 percent.
The four wounded Asian economic tigers — Hong Kong, South Korea, Singapore and Taiwan — will have the weakest regional growth in 2003 with their average at just 2.3 percent, although this will rise to 4.2 percent next year.
While the IMF forecast relatively strong short-term growth for the region, it warned of the need for greater exchange rate flexibility in some Asian countries to avoid a potentially devastating effect on Europe if the colossal US current account deficit eventually causes a plunge in the dollar.
“Some day the US current account deficit, which now runs over five percent of GDP... has to unwind and when it does there will be a sharp drop in the dollar,” said IMF chief economist Kenneth Rogoff.
“Clearly if the euro has to bear the lion’s share of the adjustment of the dollar, that’s going to create a lot more difficulties than if it’s more evenly distributed, and the Asian currencies, not just China, allow themselves to appreciate significantly against the dollar.”
“Bad enough that the global economy has been flying on one engine, but it’s going to be a lot worse if it has to land on one wheel,” Rogoff added, saying the scenario could happen two to five years from now. The IMF report said the benefits of further exchange rate flexibility included reducing risks of future crises, making domestic growth less dependent on the global cycle and lowering holding costs of official reserves. In the short-term, the IMF said the economic devastation of SARS, which hit East Asia harder than anywhere else in the world and was not controlled until June, was almost over but warned of more trouble if there was another outbreak. The IMF said softness in the information technology sector and a reversal of favorable borrowing conditions for emerging markets also posed a significant short-term risk to the region’s economies. “(This) could create difficulties for countries with very high public debt,” the IMF said, singling out the Philippines as being particularly vulnerable.
Other important issues in Asia remain fixing non-performing loan problems in nations such as China, Indonesia, the Philippines and Thailand. Insolvency laws to encourage corporate restructuring also needed to be strengthened in India, South Korea, the Philippines and Thailand.