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Investing in a Rebalancing of Growth in Asia

Continuing my travels through Asia for the launch of our October 2010 Regional Economic Outlook: Asia and Pacific, I am writing to you today from Singapore. In my last post, I focused on the near-term outlook and challenges for Asia. Today, I turn to the key medium-term challenge—the need to rebalance economies in the region away from heavy reliance on exports by strengthening domestic sources of growth. This is against a backdrop of the need to rebalance global growth that was emphasized over the weekend by the ministers of the Group of Twenty industrialized and emerging market countries.

Heavy reliance, arguably over-reliance, on exports is a common challenge across Asia. Yet, the policies to address it will differ among the countries in the region. Much of the public discussion focuses on ways to increase consumption, and this is something the IMF has written about extensively in the past. But the role of investment in rebalancing growth is equally important and something that should not be overlooked.

Current gaps in investment

Across the region, investment could play a bigger role in driving growth in three respects.

Boosting investment

What are the main reasons for this situation, and what can be done about it? Two important factors seem to be at play.

Policy actions under way

The good news is that several countries are already taking steps in the right direction.

Clearly, it will take time and steadfast implementation of reforms to boost investment and, in turn, rebalance Asia’s growth. But the strength with which shock waves from the financial crisis hit markets across Asia—from India to Japan—also remind us that Asia’s economies will be the primary beneficiaries of strengthening their domestic engines of growth. The time has come to invest in a rebalancing of growth in Asia.