IMF cuts Japan 2009 GDP view sharply, trims China

WASHINGTON (Reuters) - Japan's recession this year will be far deeper than initially thought, while China's 2009 growth rate will slow, the International Monetary Fund forecast on Wednesday.

In its World Economic Outlook, the IMF said Asia was hit harder by the steep drop in global trade than by the financial crisis itself, and India, China, Korea and Malaysia had room to reduce interest rates to cushion the blow.

"There were many reasons to expect Asia to be relatively shielded from the crisis: unlike Europe, the region was not heavily exposed to U.S. securitized assets, and improved macroeconomic fundamentals and relatively sound bank and corporate balance sheets were expected to provide buffers," the IMF said.

"Nevertheless, since September 2008, the crisis has spread quickly to Asia and has dramatically affected its economies."

Asia's advanced economies were taking the hardest hit given their exposure to big-ticket trade categories such as autos and electronics where demand has fallen sharply.

In Japan, the IMF said it now expects 2009 output to fall 6.2 percent, far worse than its January forecast for a 2.6 percent decline in gross domestic product.

For China, the IMF trimmed its 2009 growth forecast to 6.5 percent from 6.7 percent. That would be only half the growth rate recorded in 2007, and also down sharply from last year's 9 percent.

"The risks to the outlook for the region remain tilted squarely to the downside," the IMF said. "A key concern is that a deeper or longer recession in advanced economies outside Asia will reduce external demand even further, with negative repercussions for exports, investment and growth."

The Fund said the principle policy challenge was to rebalance economies away from exports and toward domestic investment. It said much had already been done to try to support demand, but in many economies more action may be needed. LINK...