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IMF: Asia-Pac to be world's growth hub despite China drag
THE International Monetary Fund (IMF) expects slower economic growth in China to drag Singapore's 2015 growth down "modestly" to below the 3.0 per cent the IMF had earlier projected.
Singapore's on-going economic restructuring will also continue to be contractionary, making a downward revision in the IMF growth forecast almost a foregone conclusion, said the IMF's local representative Geoffrey Heenan on Thursday.
However, he said that this restructuring is good for Singapore's long-term GDP growth, and in line with the policy prescription the IMF makes in its latest assessments of the Asia-Pacific economies.
He also disclosed that the agency's country report on Singapore is likely to come out on Tuesday.
In its report on Thursday entitled "Regional Economic Outlook (Asia and Pacific) - Stabilising and Outperforming Other Regions", the IMF said governments in the region have got their monetary and fiscal policy broadly right, but must give top priority to "boosting resilience and potential growth through country-specific structural reforms". Further delays in structural reforms could hold back growth, it warned.
Even if the IMF trims its 2015 GDP growth forecast for Singapore, the revised number is likely to remain in the upper range of Singapore's official projection of between 2.0 and 4.0 per cent.
The outlook in the IMF's report for the region put Singapore's growth for this year at 3.0 per cent, up from an actual growth of 2.9 per cent in 2014. Singapore's GDP is tipped to continue to grow 3.0 per cent in 2016.
China's GDP growth, at 7.4 per cent last year, is projected to slip to 6.8 per cent this year and to 6.3 per cent next year, as the country continues to make adjustments in its real estate sector, shadow banking and local government finances.
The IMF's director for the Asia and Pacific Changyong Rhee, told reporters on Thursday: "This slowdown is largely policy-induced and welcome, as it will contain vulnerabilities and promote a more sustainable growth path."
The agency estimates that each percentage point dip in China's GDP growth will cost economies in the region 0.3 to 0.5 percentage point in growth.
Despite this, the IMF names the Asia-Pacific as the world's most dynamic region, with its growth this year likely to stay at last year's 5.6 per cent pace; in 2016, the region is expected to grow 5.5 per cent.
Mr Changyong said: "Domestic demand is forecast to remain the main driver of growth, especially in non-advanced Asia. We expect the windfall boost to real incomes from lower world oil prices and strong labour market conditions to offset the modest tightening of financial conditions foreseen in our baseline."
India and Japan are tipped to pick up the slack, with the slowdown in China; Japan is expected to bounce back from a 0.1 per cent fall in 2014 to grow 1.0 per cent this year and by 1.2 per cent next year.
Mr Changyong added: "Private consumption (in Japan) will accelerate on lower oil prices and rising real wages. Favourable wage outcomes in the ongoing negotiation round will be critical for achieving this forecast."
India, a new bright spot in Asia, is expected to boost its growth from 7.2 per cent this year to 7.5 per cent next year and the year after, thanks to recent policy reform announcements and lower oil prices.
"Early implementation of the reforms will reinforce confidence and increase growth potential," Mr Changyong said.
Asean, which will become a common market at the end of this year, is likely to pick up speed to grow 5.1 per cent in 2015 and 5.3 per cent in 2016, up from 4.6 per cent last year.
But it will not be plain sailing for the region. The IMF cautions that the weaker-than-expected growth in China and Japan - the Asia-Pacific's two biggest economies - could derail growth in the rest of the region.
"Tightening global financial conditions and disruptive currency movements, possibly associated with asynchronous monetary policies in major advanced economies, could affect financial stability," Mr Changyong said. "This is particularly the case where leverage and foreign-exchange-denominated corporate debt is high."
Beyond the near-term, he said potential growth is falling across the Asia-Pacific, because of an aging population and slower productivity growth.