Wednesday, April 9, 2014

In IMF Outlook, Asia Looks Good by Comparison

By Michelle Yuan

Global economic concerns appear, for now, to have shifted away from Asia.

The International Monetary Fund, in its latest global economic outlook, signaled out Brazil, Russia and South Africa for big growth forecast downgrades. Meanwhile, the fund’s projections for India, China and Indonesia have improved in recent months.

What a turnaround from 2013. Last summer, foreign funds were retrenching from markets like Indonesia and India in anticipation of higher U.S. rates. Currencies and assets in these countries suffered. Growth projections plummeted.

So what’s changed? For one, many of these countries have taken measures to make their economies more resilient. India, for instance, has raised rates and laid plans to boost investment. The dollar has declined 3% against the rupee currency this year. The IMF is expecting growth of 5.4%, up from 4.4% in 2013.

Foreign fund managers poured $342.2 million into India’s stock market last week, the first weekly net inflow since October and the biggest since January 2013, according to data provider EPFR Global.

Indonesia, too, has raised rates and the rupiah currency has gained 7% and stocks are up 14% so far in 2014. Net inflows into the market totaled $103.6 million last week, the most since April 2013.

The IMF expects China’s economy to grow 7.5% in 2014, down slightly from 7.7% last year. The fund said slower growth reflected moves by Beijing to rein in credit growth and move to a more sustainable growth model.

That doesn’t mean there’s nothing to worry about in Asia, among them fears about a hard landing in China.

“It’s a relative story,” said Frederic Neumann, an economist at HSBC. “Asia looks as if it’s shining again and there is clearly a rotation within emerging markets into Asia but that doesn’t mean we should cast away all worries.”

For now, though, other areas of the globe are causing more jitters. Russia’s invasion of the Crimea has led to capital outflows, further weakening an economy with low investment, the IMF said. The dollar has gained over 8% against the ruble in 2014. The fund expects the economy to grow 1.3% in 2014, down 0.6 percentage point from its projection just three months ago.

Brazil also is suffering. The IMF expects growth of 2.3% this year, down 0.5 percentage point from its last forecast. Inflation remains high despite a series of rate hikes. High public debt remains an issue, the fund said.

The IMF also reduced its forecast for South Africa by  0.5 percentage point to 1.9% growth in 2014. Unlike some Asian countries, South Africa’s tight monetary policy and a falling rand currency has failed to narrow a large current account deficit. That leaves the country dependent on foreign capital and could force the central bank into more rate hikes to protect the economy, the IMF said.

What’s more, unemployment, at a quarter of the workforce, remains “unacceptably high,” the fund added.

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