IMF downgrades Asean-5 growth forecast

MANILA, Philippines - The International Monetary Fund (IMF) has downgraded its economic growth forecast for the Association of Southeast Asian Nations-5 (ASEAN-5) amid geopolitical risks and the impending rise in global interest rates.

The bloc – made up of Indonesia, Malaysia, the Philippines, Thailand and Vietnam – is now seen growing 4.6 percent this year, slower than the 4.9 percent forecast made in April, according the IMF’s latest World Economic Outlook.

This is in line with a lowered 2014 forecast for world economic expansion at 3.4 percent from an earlier projection of 3.6 percent.

“Downside risks remain a concern. Increased geopolitical risks could lead to sharply higher oil prices. Financial market risks include higher-than-expected US long-term rates and a reversal of recent risk spread and volatility compression,” the IMF said.

“Global growth could be weaker for longer, given the lack of robust momentum in advanced economies despite very low interest rates and the easing of other brakes to the recovery. In some major emerging market economies, the negative growth effects of supply-side constraints and the tightening of financial conditions over the past year could be more protracted,” the IMF added.

The IMF warned that emerging market economies, especially those already experiencing domestic weaknesses, may further see worsening financial conditions and capital outflows.

Weaker global growth seen during the first half of the year should prompt economies to focus on boosting output.

“Many emerging market and developing economies are still adjusting to tighter financial conditions and implied higher cost of capital since May 2013 and weaker medium-term growth trajectories,” the IMF said.

“But with external vulnerabilities and little macroeconomic policy space in some cases, policy options to support growth if needed are more limited,” the IMF added.

 “Allowing exchange rates to respond to changing fundamentals and addressing problems of inflation pressure and policy credibility where relevant will generally help build monetary policy space,” it said.

The IMF also pointed out the need for structural reforms in many advanced and emerging economies in order to improve their growth potential and make it sustainable.