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SINGAPORE : The International Monetary Fund (IMF) said Asia's export-driven countries must seek to grow their domestic market.
In its latest report on Wednesday, the IMF slashed its growth forecast for the region to just 1.3 per cent this year, down from an earlier estimate of a 2.7 per cent expansion.
Shipments at ports around Asia have dwindled as global demand weakens. IMF said a key challenge for region is to rebalance its growth model and focus on boosting domestic demand.
Joshua Felman, assistant director of the IMF's Asia and Pacific Department, said: "The entire world produced and they sold goods to US consumers. But US consumers are now going to have to start to live within their means after a long period of financing their consumption through borrowing, and that's going to hit producers and exporters all over the world.
"And that means that the export growth strategy that Asia has followed for so long has to change."
Releasing its latest Regional Economic Outlook for Asia and the Pacific, the IMF added that the region needs to implement what it called "forceful" monetary and fiscal policies through next year to insure against downside economic risks.
It said governments should also sustain the fiscal stimulus injected in 2009 into next year.
As for monetary policy, the IMF noted that many central banks in the Asia Pacific still have scope to cut interest rates, while others may need to supply credit to the private sector through unconventional measures.
IMF also highlighted higher corporate losses as another potential downside risk.
Said Felman: "It's inevitable... as companies struggle with excess capacity and financing constraints, you are going to see more corporate defaults in Asia. That's going to come, and as the stress on corporates rises, you are going to see more unemployment, which will then hit both consumption and investment.
"But we don't foresee a tremendous wave of corporate defaults that occurred for example, in the Asian crisis 10 years ago."
IMF said there are signs that things are stabilising, but it is unlikely to be the start of "vigorous recovery".
For 2010, the IMF expects Asia to grow by 4.3 per cent as a whole, down from the 5.1 per cent expansion seen in 2008. - CNA /ls
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