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Asia recovering; but challenges ahead: IMF

Economic recovery in Asia is faster than the rest of the world says the IMF.

Written by Agencies | Washington |
October 29, 2009 12:29:13 pm

The economic recovery in Asia is faster than the rest of the world and is projected to grow by 5.75 per cent during 2010,says the International Monetary Fund.

“The region (Asia) is out pacing other parts of the world,with the “green shoots” of recovery appearing earlier and taking firmer roots than elsewhere,” the IMF said.

IMF forecasts suggest Asia will grow by 5.75 per cent in 2010,higher than the 1.25 per cent predicted for the G-7 economies,but short of the 6.66 per cent average recorded for the region over the past decade.

“Asian economies have been very strong in their stimulus from both monetary and fiscal sources,” IMF Asia and Pacific Department Director Anoop Singh said.

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Pointing out that Asia’s outlook would be closely tied to the global economy,the report,however,warned that the continued weak global demand would have a considerable impact on the region’s future growth because of heavy dependence on exports.

“Asia has boomed as America’s consumption outpaced its income. If over the coming decade,US consumption slows markedly,the impact on Asia’s growth could be sizeable,” the report warned.

It added that over the longer-term,Asia’s future prospects would depend on the region’s success in allowing domestic sources to play an important role in promoting growth.

“For Asia to retain its strong growth momentum,it needs to shift the drivers of recovery from an export engine,much more into domestic demand,” Singh added.

The fast recovery in the Asian region is largely due to the fact that amid the global downturn,Asian authorities have deployed packages to boost government spending,reduce interest rates and stabilise financial markets.

“These measures were much larger than in previous crises,and in the case of the fiscal programs even larger,on average,than those introduced by the Group of 20 industrialised and emerging market countries,” IMF said.

The vigorous reaction was made possible by Asia’s relatively strong initial conditions: in many countries,government’s fiscal positions were sounder,monetary policies more credible,and corporate and bank balance sheets sturdier than at any time in the past,the report said.

IMF added that the policy support,however,would have to be maintained for some time as private demand remains weak,and the outlook is far from certain throughout the world.

“Asian policymakers will consequently ‘need to manage a balancing act’,sustaining support for some time so as to nurture the recovery,while ensuring that stimulus is not maintained so long that it ignites asset bubbles,inflationary pressures,or threatens fiscal sustainability,” the report said.

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