Asia: Leading the Global Recovery

IMF Blog, April 29, 2010

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Asia is leading the global recovery as the world climbs out of its deepest recession in over half a century.
Asia is expected to grow by 7 percent in 2010 and 2011.
Emerging Asia is expected to grow by 8.7 percent each year in 2010 and 2011.
These performances make significant contributions to global growth of 4.2 percent in 2010 and 4.3 percent in 2011.
Key drivers:
- Strong recoveries in China, India, and other countries in the region.
- Global inventory restocking, particularly in the United States, fueling Asian production and exports late into 2010.
- Domestic demand momentum in Asia, with consumption boosted by high asset values and consumer confidence and investment helped by rising capacity utilization.

China’s growth measured 11.9 percent in the first quarter.
China is expected to average 10 percent growth for 2010 as a whole.
The strong recovery in China reflects a combination of strong private demand and government efforts to catalyze consumption and ramp up infrastructure investment.
China’s strong recovery is producing positive spillovers for the rest of the region, especially for commodity and capital goods exporters.
Policy action in China:
- As recovery takes hold, the government has begun to cool down the rapid pace of credit growth to safeguard credit quality.

This recovery differs from past episodes in several ways:
- For the first time in recent history, Asia’s contribution to global growth outstrips that of other individual regions during a recovery from a global recession.
- The bounceback is not driven solely by exports; domestic demand—including private demand—is playing a significant role.
- Capital inflows to Asia are surging, driven by high liquidity in advanced countries and attractive growth prospects and resilient policy frameworks in Asia.

Near- and medium-term risks:
- Continued large-scale capital inflows could raise the risks of inflation, asset price booms and busts, and macroeconomic volatility.
- A common medium-term challenge is rebalancing many Asian economies away from heavy reliance on exports by strengthening private demand.
Policy measures to nurture private demand:
- Strengthen and develop financial sectors.
- Develop social insurance systems to lessen the motivation for precautionary saving.
- Adopt a stronger exchange rate as part of the package to raise household incomes and consumption over the medium term.
The author indicates further discussion of these and other challenges will follow in subsequent pieces.

Source: Asia: Leading the Global Recovery — Anoop Singh, April 29, 2010