Asia-Pacific Growth May Halve in 2009 as U.S. Slows, PECC Says

By Kartik Goyal

Nov. 20 (Bloomberg) -- Growth in the Asia-Pacific region may expand in 2009 at less than half the pace of the previous two years as the global financial crisis causes the U.S. economy to contract, the Pacific Economic Cooperation Council said.

Growth in the 16 economies tracked by the council may slow to 1.2 percent next year from 3.6 percent in 2008 and 3.5 percent in 2007, it said in a statement today. The estimate includes the performance of the U.S., Chile, Peru and Japan.

The worst financial crisis since the Great Depression has pushed economies from Japan to Europe into recession, prompting policy makers around the world to cut interest rates and spend to stimulate growth. Still, falling commodity prices will help reduce Asian import costs while weakening currencies will make the region's exports more competitive, the PECC said.

``The U.S. sub-prime mortgage crisis has turned into an international financial crisis but it is not yet certain that the ensuing global downturn will result in a severe recession in Asia,'' the group said. ``In the near term, the focus for Asian governments will be to defend against further contagion effects.''

East Asia's growth is forecast to slip to 3.4 percent from 3.9 percent this year, the independent non-government group said.

The U.S. economy will probably shrink 0.5 percent in 2009 before recovering in 2010 with 2.4 percent growth, the PECC predicts. Japan may grow 0.8 percent next year, and China's growth will slow to 9 percent from 9.3 percent this year and 11.9 percent in 2007, it said.

China's growth will be supported by stronger domestic demand and government spending, the group said. China holds about half of Asia's estimated $4 trillion in foreign reserves, and surplus funds in Asia and Gulf states will be needed to recapitalize the U.S. banking industry and finance the government's deficits, it said.

``While the U.S. dollar has risen sharply since the crisis because of a flight to quality, the medium-term outlook for the greenback is more gloomy,'' said the PECC. ``With the U.S. dollar at current highs, the temptation for Asian central banks to diversify away from the dollar in the year ahead will be greater than ever. As the credit crunch eases, interest rates in the U.S. will have to rise in order to attract investment capital from the rest of the world.''

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.