European crisis darkens Asian growth outlook further

Tue Sep 11, 2012 9:07am EDT
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By Aileen Wang and Melanie Lee

TIANJIN, China (Reuters) - The downside risks to the global economy from Europe's debt crisis should not be understated and Asian export growth could be in particular jeopardy, Zhu Min, deputy managing director of the International Monetary Fund, said on Tuesday.

Zhu, speaking at a World Economic Forum meeting in the Chinese port city of Tianjin, said the crisis still had a long way to go and that the risk of a second European recession in three years would be bad news for global growth.

"We should not underestimate the negative impact from the European crisis to the whole world. This is very important," he told an audience of international business leaders gathered for an annual meeting in China.

Europe's debt crisis has festered for more than three years, and investors widely expect the 17-member euro zone economy to slide into recession in 2012 as a result of the failure to solve the crisis and engineer a recovery.

"The growth side (of Europe's crisis) has a profound impact on the global economy," Zhu said, adding that IMF models predicted as much as 1.5-2.0 percent being cut from economic activity in the U.S. and Japan and 1 percent from activity in China if there was a further deterioration in Europe.

The impact on Asian trade could be dramatic as Europe buys about a third of the region's valued added exports.

"When the growth in the euro area drops to zero, you will see export growth from this region drop to zero too. This is very important," Zhu said.

Falling demand from Europe has been a serious drag on Asian economic activity this year, compelling governments around the region to step up investment and other spending to stimulate domestic demand to compensate for the external decline.   Continued...

Zhu Min, International Monetary Fund (IMF) deputy managing director, speaks during a meeting at the World Economic Forum (WEF) in the Chinese port city of Tianjin September 11, 2012. The euro zone debt crisis still has a long way to go before it ends and it is key that Europe retains its faith in the single currency, Zhu said on Tuesday. He added that it was important not to underestimate the impact Europe's crisis was having on the global economy. REUTERS/David Gray