IMF report raises 1999 growth forecasts for Asia

By James T. Areddy

HONG KONG (Dow Jones): The International Monetary Fund (IMF) again dramatically raised its forecasts for the 1999 economic performance of Asian countries, although it has turned more cautious about some for 2000, including South Korea, China and India.

The magnitude of the IMF upgrades, contained in its World Economic Outlook report released Wednesday, shows the Washington- based organization has accepted Asia is in a sharp, V-shaped recovery from the financial crisis that began in 1997.

Except for Indonesia, which isn't forecast to chalk up economic growth until 2000, the IMF sees real gross domestic product expanding everywhere in Asia this year and next. Several economies fell into recession in 1998.

The nine developing Asian countries together should show GDP growth of 5.3 percent this year, the IMF said, higher than the 4.7 percent growth forecast in its spring outlook.

Some of the IMF's strongest upgrades from the spring forecasts were for the region's more developed economies, including Japan, South Korea and Taiwan.

Even after the upward revisions, the IMF remains less optimistic in its growth forecasts than many private analysts.

The difference may lie in the IMF's generally higher inflation forecasts for the region's economies. Higher price expectations would suggest IMF economists, more than their private counterparts, fear interest rates will need to become less accommodative, crimping output.

IMF caution is particularly apparent for 2000. Although the organization sees growth throughout Asia next year, its view is that the expansion will lose steam in several countries compared with 1999.

In its report, the IMF also urged many countries to address "lagging" corporate sector reforms, saying that ignoring these reforms will undermine recovery potential.

The IMF said compared with Latin American countries, Asian nations have recovered quickly and benefited from intra-regional trade links and a better set of macroeconomic conditions going into the financial crisis began in 1997.

The IMF said a wide range of factors have underpinned the regional recovery, including:

-- Higher exports supported by competitive exchange rates and the intra-regional trade;

-- The bottoming out of some commodity prices;

-- An upturn in the electronics industry;

-- The partial recovery of capital inflows, which have eased financial constraints;

-- Improved confidence;

-- Lower inflation;

-- Further monetary easing;

-- Inventory buildup; and

-- Improved agricultural performance.

"Stronger growth is projected for 2000 in most countries as the recent improvements in economic confidence and activity are followed by a broader-based pickup in domestic demand," the IMF said.

In a relatively upbeat assessment of the financial sectors of Asia's "crisis countries" -- Indonesia, South Korea, Malaysia and Thailand -- the IMF report highlighted progress on bank recapitalizations and restructuring in each of these countries.

"In contrast with the progress in the financial sector, corporate restructuring is at a relatively early stage in all the countries under consideration," the IMF said, adding efforts so far have been in the design, not implementation of the frameworks for corporate reform.

The IMF's more bullish growth expectations for Asia partly reflect its improved outlook for the world's industrialized economies, including Japan, Asia's largest economy.

The IMF boosted the growth prediction for Japan to 1.0 percent in 1999 and 1.5 percent in 2000. In spring, the IMF was expecting Japan's economy to contract by 1.4 percent this year and edge up marginally in 2000.

The IMF sees South Korea's economy growing 6.5 percent this year, sharply better than its spring forecast of 2.0 percent growth in 1999. But the IMF warned momentum will slow in 2000, when 5.5 percent growth is seen amid a need to "tackle the unfinished agenda of reforms in the financial and corporate sectors."

The IMF expects Thailand to post 4.0 percent GDP expansion this year, compared with its estimate of 1.0 percent growth that had been maintained since the end of 1998. It said Malaysia is benefiting from monetary stimulus and a competitive exchange rate.

The report also said the IMF expects Southeast Asia's four crisis economies to post collective growth of 1.4 percent this year.

Of the crisis countries, only Indonesia is expected to remain in recession, with GDP expected to slow 0.8 percent this year. But because it "now seems to have turned around," 2.6 percent growth should be achievable in 2000, it said.

For China, the IMF said "strains on the economy are showing."

The Fund stopped short of saying China's currency should be devalued, but noted, "The scope for further monetary easing may be constrained given the emergence of significant differentials in favor of foreign rates."

It also warned Hong Kong's "strong" banking sector is exposed to "potential difficulties in China."

The Fund left its expectation for China's GDP growth this year unchanged at 6.6 percent, but slashed its expectation for next year to 6.0 percent from 7.0 percent.

India is another country where the IMF sees a worse performance in 2000 than 1999, with growth forecast to drop to 5.5 percent in 2000 from forecast growth of 5.7 percent in 1999. "Policy action is needed on a number of fronts," it said.

The IMF made the following forecasts in the September 1999 edition of its World Economic Outlook publication.

Table A: Inflation-adjusted GDP

1999 2000 Japan +1.0% +1.5% South Korea +6.5% +5.5% China +6.6% +6.0% Taiwan +5.0% +5.1% Hong Kong +1.2% +3.6% Singapore +4.5% +5.0% Indonesia -0.8% +2.6% Malaysia +2.4% +6.5% Philippines +2.2% +3.5% Thailand +4.0% +4.0% Vietnam +3.5% +4.5% India +5.7% +5.5% Pakistan +3.1% +4.0% Australia +4.0% +3.0% New Zealand +2.6% +3.3%

Table B: Consumer Prices

1999 2000 Japan -0.4% +0.0% South Korea +0.7% +2.8% China -1.5% +1.5% Taiwan +1.0% +1.2% Hong Kong -3.1% +1.0% Singapore +0.2% +0.6% Indonesia +23% +5.7% Malaysia +3.0% +2.4% Philippines +8.5% +6.0% Thailand +0.5% +2.0% Vietnam +7.6% +6.0% India +6.5% +7.2% Pakistan +6.1% +6.5% Australia +1.8% +3.8% New Zealand +1.3% +1.9%