Thu, May 11, 2006 - Page 11 News List

US slowdown poses threat to Asia

AP AND AFP , SEOUL AND BEIJING

The top concern for Asia is an expected slowdown in growth in the US, a senior official at Fitch Ratings said yesterday, emphasizing that the region has yet to wean itself away from demand in the world's largest economy.

"The biggest threat that we see to Asian growth going forward is a slowdown in the US, which is something we do expect to happen later this year as higher interest rates start to take hold," James McCormack, Fitch's head of Asia Sovereign Ratings, told reporters.

"Even though China is absorbing more of the rest of Asia's exports [as] the US is absorbing less, a lot of that trade is then finding its way to the US," said Hong Kong-based McCormack, who was visiting Seoul for an investment seminar.

US growth accelerated in the first quarter of this year, growing an annualized 4.8 percent, a sharp rebound from the 1.7 percent recorded in the final three months of last year. US Federal Reserve Chairman Ben Bernanke said he expected growth to moderate in coming quarters.

The IMF predicted last month that the US will grow 3.4 percent this year and 3.3 percent next year, both slightly slower than last year's 3.5 percent.

McCormack cited the example of exports of intermediate goods from countries like South Korea to China, where finished products are assembled and then shipped to the US.

"So China has become a part of a regional manufacturing process," McCormack said.

He added, however, that "final demand in the US is still what matters for Asia."

China, the world's fastest growing major economy, expanded 10.2 percent in the first quarter from the same period last year. The World Bank yesterday raised its forecast for economic growth this year to 9.5 percent from an earlier forecast of 9.2 percent.

But the World Bank urged China to allow its currency to appreciate faster, saying a stronger yuan would help rebalance the nation's trade surplus and ease domestic economic problems.

"Accelerating appreciation [of the yuan] would also help reduce current account surpluses and rebalance growth towards consumption," the World Bank said as it released a quarterly report.

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