World economy to grow at staggering 3.3 %, Asia to take centre stage’

M F Jabir

Dr Koshy Matai

Sri Lanka's IMF Resident Representative Dr Koshy Matai addressing the Art CEO Network, said the outlook of the world economy was not looking that good. “We expect the world economy to grow by 3.3 % this year and at a rate of 3.6 % next year,” he said.

He however said that Asia was doing much better and for a couple of years, had been the engine of global growth. “Here in Asia things are doing much better. Asia for a couple of years has now been the engine of global growth. We have seen growth rates of 7 to 8 %, even up to 9 % in certain Asian countries which has really driven global growth. It is not how it was 10 or 20 years ago,” he said.

With regard to the world economic outlook, he said it had not been good for a while and remained weak. The situation in Europe has been very weak and many countries had endured a very weak fiscal situation. He attributed this to the general contraction of credit issued in those countries. Banks hold a lot of debts issues by those countries and their reluctance to lend further, had led to economic activities closing up, he said. He said it was advanced countries that were towing the world economy ahead some time back, but at present, it was totally different with focus on economic activities now on Asia. He however said that Asia was not immune to what was happening in the rest of the world.

He said linkages in terms of trade and bank lending has been minimum in the region compared to Europe. Hence, European countries themselves had been more affected from what was happening in Europe. Asian countries were also affected, but perhaps not as mush as other countries. Another advantage was that banks in Asia were a lot stronger than they were 15 years ago, in terms of debt acuity ratio, which meant that there were more acuity in these banks and firms and there had been more of a buffet to absorb a shock that would come from the global economy.

One area where vulnerability had increased a little bit, has been the fact that the debts that Asian counties had issued used to be owned pretty much by locals and now the degree of share of debt owned by foreigners had increased, which meant that if there was to be a shock in the world economy, those foreign holders of domestic debts could decide to get out which would result in an unprecedented capital outflow, that was one mitigating factor against a general picture about an Asia that was not so inter connected and more revealing than it was in the past, he said.