The International Monetary Fund says the euro zone debt crisis and slowdown in the US pose severe risks to Asia.
In its latest Asia-Pacific outlook the IMF warned near-term risks to Asia’s economies are “decidedly” rising.
It advised the region’s policymakers to reduce their reliance on exports and be ready to respond quickly if foreign banks sell assets or cut off credit to cover large losses at home.
The IMF says China does have the means to shield its economy by strengthening domestic growth and suggested it was also the responsibility of the world’s No. 2 economy and other export-reliant economies to help rebalance the global economy
Presenting the report Anoop Singh, head of the IMF’s Asia and Pacific department, said: “What’s important to notice is that even China’s response would only offset a part of the shock. It could not offset the entire shock.”
Singh told a news conference: “China would be more affected by trade than financial channels. That is clear. That is because China has been highly depending on external demand.”
“What it underscores.. is that the time has come for China and other countries of Asia that rely on exports to accelerate steps to build domestic engines of growth.”
The IMF report also highlighted the threat of capital outflows from the region, saying foreign investors from advanced economies could reverse the large positions they have built in Asian markets since 2009.
The IMF last month cut 2012 growth forecasts for developing Asian countries as well as for Japan, citing slower growth in the rest of the world. It also slashed its global growth projections.