IMF predicts "sluggish" growth for Asia in 2010 at 5.75%

IMF predicts "sluggish" growth for Asia in 2010 at 5.75%
By Ng Baoying, Channel NewsAsia | Posted: 03 November 2009 2102 hrs

SINGAPORE: The International Monetary Fund expects Asia's economy to grow around 5.8 per cent next year. This is below the 6.7 per cent average recorded over the past decade.

But in its latest regional economic outlook report, the IMF has still described Asia's expansion next year as "sluggish".

It expects low consumption from the G7 economies to keep export demand weak.

Asian economies have been showing signs of recovering from the global financial crisis late last year.

And while the IMF said growth is expected to be sluggish, the expansion is still at a positive 5.8 per cent.

As widely-expected, China is expected to lead growth at nine per cent with India in second place at 6.5 per cent.

Newly industrialised economies such as Singapore, Hong Kong and Taiwan are not far behind, with growth projected to come in at between 3.5 and 4.3 per cent.

Harm Zebregs, resident representative, Singapore, International Monetary Fund, said: “We see Asia recovering quite strongly at the moment from the very sharp contraction late last year which continued into the first two months of this year. This recovery is led by a normalisation of exports, restocking in the US and Europe, and a very strong policy response of course by the governments here in the region, both fiscal and monetary policy.

“The IMF said that Asian policy makers have one key challenge in the near term - that is, to maintain stimulus policies long enough for a recovery - but not too long such that inflationary pressures, and fiscal sustainability issues creep up."

But the IMF also notes that there are some factors beyond the control of governments.

Mr Zebregs said: "The recovery that's taking shape in the US and Europe, if that falters, that will have an impact on Asia because Asia is still dependent on exports to these countries. At the same time if there would be renewed turbulence in financial markets, a return to risk aversion, that could lead to capital outflows from Asia and could create new stress in financial markets here."

He suggests that to mitigate this issue in the longer term, policy makers should tackle issues such as encouraging domestic consumption.

One way would be to provide better social safety nets to reduce the need for private precautionary savings.

- CNA/vm

- wong chee tat :)