IMF warns trade war, mar­ket tur­moil to hurt Asian growth

Manila Bulletin - - Business -

NUSA DUA, In­done­sia (Reuters) – Sus­tained trade ten­sions could slash Asia's eco­nomic growth by up to 0.9 per­cent­age point in com­ing years, the In­ter­na­tional Mone­tary Fund (IMF) said, urg­ing pol­i­cy­mak­ers in the re­gion to lib­er­al­ize mar­kets to off­set the fall in ex­port sales.

The IMF also warned in its twiceyearly re­port on the Asia Pa­cific re­gion that the mar­ket rout seen in emerg­ing economies could worsen if the US Fed­eral Re­serve and other ma­jor cen­tral banks tight­ened mone­tary pol­icy more quickly than ex­pected.

"A sud­den de­te­ri­o­ra­tion of risk ap­petite, ris­ing trade ten­sions, and po­lit­i­cal and pol­icy un­cer­tainty could also lead to tighter fi­nan­cial con­di­tions," the re­port said on Fri­day.

"Tur­moil al­ready seen in some emerg­ing mar­ket economies could worsen, with neg­a­tive spillovers to Asia through re­duced cap­i­tal flows and higher fund­ing costs," it said.

The IMF main­tained its fore­cast that Asia's econ­omy will ex­pand by 5.6 per­cent this year but cut its pro­jec­tion for next year to 5.4 per­cent, down by 0.2 point from April.

The down­grade was due to the im­pact of fi­nan­cial mar­ket stress and mone­tary tight­en­ing in some economies, as well as the dam­age from the tit-for-tat tar­iff ac­tions be­tween the United States and China, the IMF said.

Ex­ist­ing, pro­posed and new re­tal­ia­tory tar­iffs could cause max­i­mum gross do­mes­tic prod­uct (GDP) losses of 1.6 per­cent in China and close to 1 per­cent in the United States, it said.

Other coun­tries in Asia, many of which sup­ply goods to China through global value chains, would also see their economies slow sub­stan­tially, the IMF said.

With all these fac­tors com­bined, growth in Asia could drop by up to 0.9 point over the next cou­ple of years, the IMF es­ti­mated.

"Sus­tained trade ten­sions could fur­ther un­der­mine con­fi­dence, hurt fi­nan­cial mar­kets, dis­rupt sup­ply chains, and dis­cour­age in­vest­ment and trade," the re­port said.

While short-term stim­u­lus mea­sures are likely to off­set much of the im­pact, pol­i­cy­mak­ers in the re­gion could also mit­i­gate the dam­age by lib­er­al­iz­ing their own mar­kets, par­tic­u­larly in the ser­vice sec­tor, the IMF said.

"There will be win­ners and losers, and ef­fect­ing such re­forms will be dif­fi­cult and will take time, but the ag­gre­gate wel­fare gains would be sub­stan­tial," it said.

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