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​Japan and China threaten Asian economic growth - IMF

Published time: April 28, 2014 11:01
Reuters/Toru Hanai

Reuters/Toru Hanai

Asian growth will remain steady at 5.4 percent in 2014, however a steeper than expected slowdown in China and a failure in Japan’s "Abenomics" program could derail the region’s economic progress, says the IMF.

Asia also faces risks from outside the region, including improving growth in the US, which could raise global interest rates the new IMF study said.

"Bouts of capital flow and asset price volatility are likely along the way, with exchange rates, equity prices, and government bond yields affected by changes in global risk aversion and capital flows," the IMF concludes.

The IMF raised its growth forecast for Asia this year due to a pickup in external demand alongside a recovery in advanced economies. Growth is also expected to improve slightly to 5.5 percent in 2015. Last year, the region grew 5.2 percent.

However, the IMF predicts China will slowly decelerate to growth of 7.5 percent this year and 7.3 percent in 2015,to a "more sustainable path".

2014 has been a bumpy start for China, due to financial sector vulnerabilities, and the temporary cost of reforms, along with the transition toward a more sustainable growth path would have significant adverse regional spillover.

Domestic and global political tensions could also create trade disruptions and weaken investment and growth across the region. In some frontier economies, high credit growth has led to rising external and domestic vulnerabilities.

The IMF expects Japan's growth to decrease to 1 percent in 2015 from 1.4 percent this year, due to a reduction in the stimulus effects from monetary and fiscal easing. Another barrier towards growth will be a need to reduce debt, the outlook said.

Abenomics is Japanese Prime Minister Shinzo Abe’s plan to stoke the economy and spur growth after decades of decline, with a commitment to keep the yen weak.

Meanwhile, the IMF says a pickup in external demand coupled with a recovery in advanced economies and resilient domestic demand should contribute to growth across most of the region.

"The advanced economies are turning a corner and many Asian economies which depend on exports as a main growth engine are in a good position to capitalize on the recovery. That's the main reason why we are positive on the Asian region," CNBC quotes Changyong Rhee, the director of Asia and Pacific Department at the IMF.

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