Deteriorating outlook for Japanese economy triggers adjustment for industrialized Asian countries.  Japan experienced the most severe downward revisions in projected GDP growth rates among the major advanced economies.  The IMF expects GDP to decline by 0.5% in 2001, more than one percentage point down from the projection earlier this year, which would mean that Japan will experience its fourth recession in the past decade this year.  Moreover, the prospects for next year remain somber.  The scope for further macroeconomic policy stimulus seems limited apart from some additional monetary easing and while the new Japanese government announced a timetable for structural reforms, the measures are likely to involve some short-term costs in output growth.  As a result, the Fund has sliced 1.3 percentage points from its previous forecast for next year and sees growth virtually flat at 0.2%.  Sluggish growth in Japan is seen to exacerbate the slowdown in Developing Asia, which is already suffering from lower global demand in general and from the downturn in the electronics cycle in particular.  The Fund lowered the estimated growth rates for the newly industrialised Asian economies in 2001 by almost 3 percentage points and for 2002 by 1.2 percentage points.  However, owing to staggering growth in China (above 7% for the forecast period) and a resilient economy in India, the Developing Asia region experienced virtually no cutbacks to growth forecasts and is expected to experience 5.8% and 6.2% expansions in this and the coming year. 

Outlook for Latin America too optimistic despite strong downward revisions in growth projections.  In the May edition of the WEO, the IMF had expected Latin American output to grow by 3.7% this year.  Overly optimistic at the time of writing – the LatinFocus Consensus Forecast was at that time half a percentage point below the IMF forecast – the Fund had to apply a severe 2 percentage point downward adjustment to reach the 1.7% growth in the current WEO.  The IMF quoted the global softening as the main determinant for the deterioration in the growth outlook.  In addition it states that difficulties in Argentina intensified throughout the year, triggering a sharp widening in sovereign bond spreads, with spillovers to other Latin American economies, while Brazilian growth was dimmed by a domestic energy crisis.  For 2002, the Fund shaved 0.8 percent off its previous growth forecast to 3.6%.  Even compared to last month’s Consensus Forecast 1.2% and 3.2% projections the Fund was overly optimistic.  Taking into account the impact of the terrorist attacks, the IMF outlook is grotesquely off. 

Table 2: Growth in Select Western Hemisphere Countries

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Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing for Latin America.  For more details please click here.

For five-year forecasts, please click here.