The downside risks to the global economy from Europe’s debt crisis should not be understated and Asian export growth could be in particular jeopardy, Zhu Min, deputy managing director of the IMF, said on Tuesday.
Zhu, speaking at a World Economic Forum meeting in the Chinese port city of Tianjin, said the crisis still had a long way to go and that the risk of a second European recession in three years would be bad news for global growth. “We should not underestimate the negative impact from the
European crisis to the whole world,” he said.
Zhu added that IMF models predicted as much as 1.5-2.0% being cut from economic activity in the US and Japan and 1% from activity in China if there was a further deterioration in Europe.
The impact on Asian trade could be dramatic as Europe buys about a third of the region’s valued added exports. “When the growth in the euro area drops to zero, export growth from this region drop to zero too.” he said.
The outlook for the German economy, Europe’s biggest, is stable for the second half of this year, but substantial downside risks remain, the german economy ministry warned on Tuesday. After Germany notched up growth of 0.5% in the first three months and 0.3% in the second quarter, “the latest economic indicators point to a fairly stable development for the second half of the year,” the ministry wrote in its monthly report.
Meanwhile, Germany’s finance minister on Tuesday hailed “substantial progress” made by Greece in cutting its debt mountain but urged Athens to stick to its promises if it wanted to receive much-needed fresh aid.
“If this doesn’t happen, then confidence would be destroyed again and there would be a heightened danger of contagion throughout the euro zone,”
Wolfgang Schaeuble said.
(With inputs from Reuters and AFP)