IMF sees Asia carrying risk from eurozone

The International Monetary Fund has cut its growth forecast for Asia amid concerns overn the health of the eurozone and the US.

In its latest regional economic outlook, the Washington-based lender says it expects the region’s output to expand by 6.25 per cent in 2011 and by 6.75 per cent in 2012, “moderately lower” than the levels it forecast in April.

The report says: “Risks for Asia are decidedly tilted to the downside, more so than they were six months ago. A worsening of the financial turbulence in the euro area poses an extreme downside risk for Asia.”

The IMF says that these risks take the form of potential liquidation of foreign investor positions, European banks not rolling over maturing loans and cutting credit lines in Asia and a loss of liquidity in key derivative markets as investors unwind long and carry-trade positions.

It says: “The weakness in global demand only confirms that Asia would greatly benefit from further progress in rebalancing growth by developing domestic sources of demand.”

Quainton Hills Financial Planning director Gordon Bowden says he is cautious about China. He says: “Much of the growth looks like it is driven by the government rather than by private enterprise. It is only private enterprise that will provide a return to investors.”