IMF sees India growth at 6.9 pct in 2012

WASHINGTON Tue Apr 17, 2012 6:36pm IST

A worker checks an iron pipe that will be used to make spare parts for a drilling machine inside a factory in Kolkata March 12, 2012. REUTERS/Rupak De Chowdhuri/Files

A worker checks an iron pipe that will be used to make spare parts for a drilling machine inside a factory in Kolkata March 12, 2012.

Credit: Reuters/Rupak De Chowdhuri/Files

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WASHINGTON (Reuters) - China and fellow Asian emerging economies face slower economic growth in 2012-13 on weak external demand, but strong Chinese domestic demand and policy easing by other Asian countries should help ensure a soft-landing, the International Monetary Fund said on Tuesday.

The IMF's World Economic Outlook projected that China wouldgrow 8.2 percent this year and 8.8 percent in 2013, unchangedfrom a January report, which had trimmed forecasts issued in theSeptember.

India is forecast to expand 6.9 percent in 2012 and 7.3percent next year, growing slightly below the revised forecastsof January as a result of weak demand and higher interest rates,the IMF said.

The region's emerging economies suffered spillover effectsin 2011 from the euro zone crisis, which hit exports to Europeand also pinched trade credit and project finance as Europeanbanks were forced to retrench, the report said.

An escalation of the euro zone crisis could lower emergingAsia's output by 1.25 percent, said the IMF, which also warnedof the risks of an oil price spike from tensions in the MiddleEast.

As a whole, Asia's emerging economies are forecast to grow7.3 percent this year and 7.9 percent in 2013, the fund said.

"The fragility of the external outlook highlights the needfor the region to rebalance growth by strengthening domesticsources of demand over the coming years," it said.

"Many Asian economies could also advance their plans toboost social safety nets and increase investment ininfrastructure if another round of fiscal stimulus iswarranted," the IMF added, while urging Japan and India tocontinue efforts at fiscal consolidation.

CHINA REBALANCING QUESTIONED

China weathered the euro zone crisis through stronginvestment and private consumption, supported by solid corporateprofits and rising household income, but balance sheets in theworld's second biggest economy are vulnerable to a slowdown inthe real estate and export sectors, the fund said.

"A large external shock could bring these risks to the fore,precipitating a decline in investment and activity in China thatwould also have implications for its trading partners," said thereport.

The IMF found China's reduction of its current accountsurplus, to 2.8 percent of GDP at the end of 2011 from 10.1percent of GDP in 2008, was "impressive and should be welcomed"but did not represent rebalancing toward the domesticdemand-driven growth that the fund and China's trade partnershave advocated.

"This adjustment has largely been the result of very highlevels of investment, a weak global environment, and a pace ofincrease of commodity prices that outstrips the rising price ofChinese manufactured goods," the IMF said in a separate study.

China has allowed its currency to appreciate 14.75 percentin real terms from April 2008 through December 2011 and hastaken other steps to boost demand, the fund noted.

However, the IMF added, "the official statistics do not yetindicate that the shift in the external imbalance is due toconsumption rising as a share of GDP or national savingsfalling."

The fund forecast China's current account surplus at 2.3percent of GDP this year and 2.6 percent in 2013. It said eventhese modest surpluses would be "far from negligible" as apercentage of world output given the speed at which China'seconomy is growing.

Unless China can stimulate consumption, China would trim itsexternal surplus only to face a wide domestic imbalance betweeninvestment and consumption, said the study.

A big domestic imbalance could "create tensions andinstability in China's economy which, in turn, because ofChina's size and systemic importance, will undoubtedly haveconsequences for global macroeconomic and financial stability,"the IMF warned. (Editing by Neil Stempleman)

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