Asian growth to slow as Chinese economy adjusts

Asian growth to slow as Chinese economy adjusts

MADRID (AFP): Asia's economic growth is expected to slow this year as China moderates its hectic pace of industrial expansion to a more sustainable path, the International Monetary Fund (IMF) said yesterday.

But the IMF nevertheless projected faster growth rates for several individual Asian countries, notably the Philippines, South Korea, Pakistan, India and Thailand, citing inflows of investment and strong exports. Indonesia's rate of expansion is forecast to remain steady.

In its half-yearly World Economic Outlook, the IMF noted that China had been one of the biggest recipients of capital inflows over the past two years and was still one of the world's fastest- growing economies.

But while a stabilization program had been adopted in mid-1993 to bring down inflation as it surged to an annual rate of more than 20 percent, "its implementation was not maintained," the report said.

The tightening of monetary policy late last year has led to "clearer signs of reduced inflationary pressures" and although structural financial reforms have been introduced this year, additional steps must be taken.

"The challenge for the authorities is to ensure the achievement and maintenance of macroeconomic stability while continuing with structural reforms needed to transform the Chinese economy to a market-based system," the report said.

The IMF forecast that China's gross domestic product (GDP) was therefore likely to expand at a reduced pace of 11 percent this year as China proceeded with the reforms, down from 13.4 percent last year and depressing Asia's overall growth rate from 8.5 percent to eight percent.

At the same time, however, China's inflation was projected to increase with consumer prices climbing at an annual rate of 15 percent this year, up from 13 percent last year, the report said.

Taiwan, whose economy has become closely linked with the mainland in recent years, seems to be the major victim of China's economic slowdown with GDP growth expected to fall from 6.1 percent to 5.8 percent.

Economy

The IMF said that economic activity was expected to accelerate in most other Asian economies including India where GDP growth is forecast to improve from four percent to 4.8 percent thanks to recent reforms.

The IMF praised recent reforms in India's tax system and its communications and mining sectors.

"But other structural reforms -- including liberalization of consumer goods imports, labor market reforms, restructuring of public enterprises and financial sector reforms -- will need to be accelerated," it said.

Elsewhere in Asia, economic growth is meanwhile expected to accelerate from 5.5 percent to 7.9 percent in South Korea, from three percent to 5.2 percent in Pakistan and from 7.8 percent to 8.2 percent in Thailand. The IMF also projected Indonesia's growth rate at 6.5 percent, unchanged from last year.

The report noted that buoyant domestic demand and strong exports were the main factors driving both the Indonesian and Thai economies.

The biggest change is expected to take place in the Philippines with the pace of economic expansion jumping from 1.7 percent last year to 4.5 percent this year, mainly reflecting rapid export growth.

"Inflation accelerated in early 1994 as demand pressures built up, but it is expected to ease as financial restrain takes effect," the report said.