IMF warns Asia of spillover from European crisis

The International Monetary Fund (IMF) warned Asia yesterday of potential spillovers from the European debt crisis, which is unfolding a decade after the region underwent its own financial turmoil.

"Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand," IMF Deputy Managing Director Naoyuki Shinohara told a forum in Singapore.

On the financial front, he said major credit problems could result in a "significant spillover" through funding channels, especially where banks depend on wholesale funding. The crisis has also increased the potential for uncertainty and volatility in the outlook for capital flows, Shinohara said at the forum hosted by the Monetary Authority of Singapore, the de facto central bank.

He said Asia's bright growth prospects, together with low interest rates in major economies, would likely attract more capital that could lead to risks of overheating in some economies if appropriate policy action is not taken.

"On the other hand, further increases in global risk aversion could see capital flows change direction quickly." Asia underwent a severe financial crisis in the late 1990s after a lending spree triggered currency volatility, resulting in the collapse of banks and companies across the world's most populous region.

The region also suffered from the global recession triggered by the US housing market collapse two years ago, but is now leading the recovery. Shinohara called on Asian governments to be wary of the potential risks from the European crisis and be prepared to take appropriate action. "The key will be for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold," he said. 

China exports blast past market forecast

Chinese exports in May grew 50 per cent from a year earlier, sources said yesterday, a figure that blew past expectations and fuelled a rise in stock markets globally.

The key Chinese stock index, which had been in negative territory, jumped 2.8 per cent as the strong export growth reassured investors who have been worried that the European debt crisis would weigh on the global economy.

Exports, which are scheduled to be reported as part of broader trade data today, had been expected to rise 32 per cent year-on-year in May after recording a 30.5 per cent pace in April. If confirmed, the surge in external demand would suggest that the risk of a Chinese economic downturn is very small, said Huang Lin, an economist with Soochow Securities in Beijing. (Reuters)

Follow Emirates 24|7 on Google News.