Asia not 'immune' to US slowdown -- ADB
By Kimiko de Freytas-Tamura
Agence France-Presse
First Posted 16:53:00 02/08/2008
TOKYO -- Asian Development Bank chief Haruhiko Kuroda warned Friday that the continent was not immune to a US economic slowdown, despite its resilience amid the housing market turmoil.
Asian economies "are not totally immune to global market turbulence and negative developments," Kuroda told a symposium in Tokyo ahead of this weekend's meeting of Group of Seven finance chiefs.
"A deep and prolonged US recession, should it ever occur, could be accompanied by much slower growth in Asia," he said.
"A significant slowdown in the US economy will most certainly affect the region's growth performance through trade, investment and financial linkages," he said.
Kuroda said spill-over from the world's three largest financial markets -- US, Europe, and Japan -- could be "potentially large" and called on Asian policymakers to take steps to ensure confidence in the regions' money markets.
The subprime crisis erupted last year as a growing number of Americans defaulted on loans which they received during the last housing boom despite patchy credit histories.
Asian banks have been less exposed to subprime losses than their US and European counterparts but the region's equities have still seen volatility.
Governments "must continue to pursue sound macroeconomic management, strengthen prudential supervision of financial institutions and improve structural resilience through more comprehensive reform efforts," Kuroda said.
The US Congress overnight passed a major stimulus package aimed at reviving the economy. But Washington's calls for other major economies to take similar action are expected to meet some resistance at Saturday's G7 meeting.
Kuroda said Southeast and East Asian economies including Japan and China could implement fiscal stimulus plans if global growth cools, but said it was not necessary for the moment.
"If necessary, emerging economies in Asia with increased fiscal space could introduce some stimulus measures," Kuroda said.
But "last year many Asian economies including China were overheated with accelerated inflation. For them a still important challenge is how to contain inflationary pressures rather than introducing a fiscal stimulus," he said.
"At this stage, Asian economies have been increasing inflationary pressures rather than recession prospects," he said.
Kuroda, a former senior finance ministry official, is seen as a potential candidate to replace Bank of Japan governor Toshihiko Fukui when his term expires in March.
Another likely candidate is current deputy governor Toshiro Muto.
For Japan only, Kuroda projected year-on-year growth of 1 to 1.5 percent, significantly lower than the 2 percent annualised rate attained in early 2007 as the country finally came out of a protracted slump.
Echoing Bank of Japan projections, Kuroda attributed the slower growth to tighter construction regulations that the government enacted in September after a scandal in which an architect faked earthquake-resistance data.
Kuroda expected Japan's growth to be back on track by the second half of the year.
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