January 23, 2008, 7.46 am (Singapore time)

Updated at 10.30am

IMF says significant 2008 global slowdown inevitable

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WASHINGTON - A ’significant’ slowdown in 2008 world growth appears inevitable, with the process of restoring markets going to be a complex and protracted task, an International Monetary Fund spokesman said on Tuesday.

In a statement, spokesman Masood Ahmed, said the US Federal Reserve’s 75 basis point rate cut earlier on Tuesday was ‘appropriate and helpful’.

‘The volatile weakening experienced in many equity markets during the past few days has underscored the burden that the current financial market turmoil represents for the global growth outlook,’ he said in a statement. ‘Thus, a significant 2008 slowing in the global expansion already appears inevitable, and downside risks still predominate.’

‘Financial market prices are consistent at present with expectations of significant future rate declines,’ Mr Ahmed said, also calling for targeted and timely fiscal measures to provide near-term support for demand.

South-east Asia may face biggest impact from US slowdown
South-east Asia will face stiffer export competition from China and likely bear the brunt of any impact in Asia from a major economic slowdown in the United States, an IMF official said on Tuesday.

A recession in the United States, anticipated by some economists as a result of a current housing slump and related credit crunch, will obviously lead to a cutback in exports by Asia’s rapidly-growing economies, led by China.

Based on a ‘rough rule of thumb’, for about a one percentage point decline in US economic growth, there could be a ‘half to a full percent decline in Asian growth, depending upon what the effects are beyond the United States’, said Steven Dunaway, deputy director of the International Monetary Fund’s Asia and Pacific department.

‘There will be much more of an impact in South-east Asia, which faces direct competition from China in terms of a number of export products,’ he said. ‘Those (Southeast Asian) countries will all face a much tougher time with the slowdown in the United States and probably some extra competition from China.’

He said Asia’s exporting nations were ‘going to be competing for a piece of a smaller pie’ if US imports shrunk. He raised the possibility of China slashing prices to remain competitive. ‘If the Chinese themselves face a more difficult environment, there will be some tendency probably at least to hold prices if not cut prices,’ he said.

This would ‘affect profit margins and put some additional competitive pressure on South-east Asian firms as well as firms in other countries competing with Chinese companies,’ he said. — REUTERS, AFP