US deficit, volatile oil prices threats to Asian recovery: IMF
US deficit, volatile oil prices threats to Asian recovery: IMF
Martin Abbugao Agence France-Presse Singapore
The US current account deficit, volatile oil prices due to tensions in the Middle East and Japan's prolonged slump are key risks to Asia's economic recovery, a top IMF researcher said Friday.
While the US economy is the world's biggest engine for growth, its current account deficit was also a threat to the nascent global rebound, said David Robinson, senior adviser at the International Monetary Fund research department.
He said at a presentation to analysts and the media on the Singapore leg of an Asian tour that the risk was "an old one but a real one".
With data suggesting the US deficit could widen to between 4.0-5.0 percent of gross domestic product (GDP), there was a danger it could lead to a sharp weakening of the US dollar, which would impact on other currencies.
The deficit is not a problem alone for the US, whose economy has been absorbing much of the world's exports and investments.
Other growth areas like Japan and the European Union should import more to reduce their current account surpluses with the US and "the way to do that is to have more rapid growth in these parts of the world," he said.
Last week, US Treasury undersecretary for international affairs John Taylor said the IMF was wrong to place great focus on the current account deficit as a risk for the global economy.
"The current account reflects the fact that investment in the United States is greater than saving (and) the fact that America is a good place to invest," he said.
In its World Economic Outlook issued on April 18, the IMF said Asia was hauling itself out of the economic downturn, thanks to a rebound in its staple electronics exports as the rest of the world picks up.
Another key worry was volatile oil prices due to the continuing tensions in the Middle East, Robinson said.
While current oil prices of around 26 dollars a barrel were not a cause for concern, the risk of a sharp increase remained, he said.
A sustained five-dollar increase in oil prices would shave 0.4 percentage points off Asia's GDP growth rate, 0.4 for both the US and Europe, and 0.2 for Japan, he said.
"Never forget oil and never underestimate its impact on the world economy," Robinson said.
Japan's recovery was also more crucial to Asia than normally believed because of its links to East Asia, although Tokyo's influence had waned in recent years, he said.
Malaysia's exports to Japan account for 13 percent of its GDP and Japan accounts for 14 percent of foreign direct investments (FDI) to the country.
Singapore's exports to Japan account for 11 percent of GDP, while Japan's share of FDI to the city-state is 23 percent, according to an IMF table.
Japanese imports from Indonesia account for 8.0 percent of Jakarta's GDP. Japan's share of FDI to Indonesia is 13 percent.
"It is important to recognize that a prosperous Japan is in the interest of the region and the world," he said.
Robinson said the world's second largest economy should adopt a more aggressive monetary policy and set a clear inflation target to lift it out of recession.