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World: Asia Crisis Hurting Economic Growth, But Not Everywhere

  • Robert Lyle

Washington, 22 December 1997 -- The Asian financial crisis is having a negative effect on the global economy, according to the International Monetary Fund (IMF), prompting it to lower it's projection for world economic growth for this year by one-tenth of one percent (to 4.1 percent growth) and to drop its forecast for next year by eight-tenths of a percent (to 3.5 percent growth).

In a revised World Economic Outlook released Sunday in Washington, the IMF says, however, that the nations in transition will not suffer any drop in output this year compared to previous forecasts, but could see growth in 1998 reduced to 3.4 percent. That's an eight-tenths of one percent cut from the fund's previous estimate.

The effects of the Asian crisis -- the resulting slow down in trade, reduction in investment capital going to emerging markets, rising interest rates and other impacts -- will vary from country to country in East and Central Europe and Central Asia, says the IMF.

Hardest hit this year may be Russia and the nations of the Transcaucasus and Central Asia, according to the report.

The fund cut its forecast for grow this year by two-tenths of a percent to 1.3 percent growth. However, for next year, the fund reduced its projection by 1.6 percent. That makes it's forecast for Russia, the Transcaucasus and Central Asia at 3.3 percent economic growth in 1998. That is still far better than the last several years of economic decline, say IMF officials.

For the nations of Central and Eastern Europe, the fund actually increased its estimate of growth for this year by three-tenths of a percent, raising it to 2.4 percent this year, but reducing the projection for 1998 to 3.4 percent, just two-tenths of a percent below its previous estimate.

However, if you remove the least advanced two nations in that group -- Belarus and Ukraine -- the IMF says economic output growth in East and Central Europe this year should reach 3.3 percent -- that's an improvement of one-half percent over the last projection -- and show continued growth in 1998 of 4.3 percent. That represents a four-tenths of one percent increase over the fund's previous estimate for Central and Eastern Europe without Belarus and Ukraine.

In other areas, the IMF staff report estimates that the impact of the Asian financial crisis will cut trade -- reducing imports more than exports -- and slightly increase inflation for the nations in transition as a group.

The report projects imports into the nations in transition increasing by nearly nine percent this year, three quarters of a percent below the fund's earlier projections, while exports from these countries will increase by 5.2 percent this year, just slightly below previous estimates.

For 1998, the IMF report estimates imports will increase by 7.5 percent -- a percent below previous forecasts -- while exports rise by 6.4 percent, a change of less than three-quarters of a percent.

Consumer price projections -- a measure of inflation -- should average around 29 percent annually this year in the nations in transition, according to the report, and falling to 14.6 percent inflation on average in 1998. Those estimates are only slightly worse than what the IMF had previously been projecting.

IMF Economic Counsellor and Director of the Fund's Research Department, Michael Mussa, told reporters that with the continued turmoil in Asian financial markets, the impact on the global economy is apt to be even worse than these projections next year.

However, he added, economic forecasts, even from the IMF, are notoriously unreliable.