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IMF Survey: Top Policy Challenge for Asia: Exiting from Stimulus
October 9, 2010
- Asia to lead recovery, sustained by improved labor market, financial conditions
- Call to accelerate unwinding of simulative policies
- Support for continued rebalancing of Asian economies
Asia will continue to lead the global recovery over the short term, with the region expected to grow by 8 percent this year; but the main challenge for Asian policymakers remains managing the exit from stimulus policies, say IMF economists.
Asian policy makers could accelerate withdrawal of simulative policies, Singh told journalists at the World Bank-IMF Annual Meetings (Photo: IMF/Steve Jaffe)
IMF ANNUAL MEETINGS
Despite the turbulence in financial markets in the first half of this year, and variable growth throughout the region, Asia as a whole, continued to perform strongly in 2010.
“We expect Asia to continue leading the global recovery in the near term and to grow by 8 percent in 2010, before moderating to a more sustainable rate of about 7 percent in 2011,” Anoop Singh, the head of the IMF’s Asia and Pacific Department, told journalists at a press briefing on the sidelines of the IMF-World Bank Annual Meetings.
Off the back of these favorable conditions, authorities throughout Asia have started withdrawing fiscal stimulus and normalizing macroeconomic policies.
Measured pace
“Thus far, the pace of exit remains rightly measured, and monetary and fiscal policies are still generally accommodative, but the region can clearly accelerate its pace,” said Singh.
The speed of the recovery has varied across Asia, with China and India continuing to lead the region’s growth. China and India are expected to grow by 10.5 percent and 9.7 percent respectively this year.
Economic activity accelerated in many of Asia’s low-income countries, thanks to higher external demand, strong investment in the commodity sector, and continuing accommodative macroeconomic policies.
In Sri Lanka and Mongolia, for example, the economic outlook has also improved markedly, partly helped by Fund-supported programs.
Meanwhile the outlook in Japan remains far weaker.
Improved labor markets
Asia’s overall growth is expected to be sustained by improvements in labor market conditions and accommodative financial conditions which are expected to sustain private domestic demand, while the continuing recovery in advanced economies should support Asia’s exports.
However, Singh warned that despite Asia’s strong economic and policy fundamentals, risks remained from a further deterioration in financial conditions and a slowing of the global recovery.
“We are not at the stage of decoupling,” said Singh.
“A weaker-than-expected recovery of final demand in advanced economies and more volatile capital inflows to Asia could hurt private domestic demand in the region,” he added.
Over the medium term, the IMF economist said that sustaining robust growth would require continued progress with rebalancing growth toward domestic demand, and he noted that that was already under way in many countries.
“We have had a longstanding view that those countries with current account surpluses—some of which are in Asia—need to rebalance their economies toward domestic demand and away from a reliance on exports.
“Doing so would be very much in Asia’s own interest,” he added.