IMF: Emerging Asia needs to rebalance growth toward domestic sources

By Takehiko Kambayashi Sep 20, 2011, 13:02 GMT

Tokyo/Washington - Economic growth in Asia remains strong, but emerging economies need to rebalance their own policies from exports to domestic demand, the International Monetary Fund (IMF) said Tuesday.

Growth in Asia remained solid but moderated in the first half of 2011 due to disruptions in supply chains from Japan's March tsunami disaster and weaker external demand, the IMF said in its semi-annual World Economic Outlook.

The recent volatility on Wall Street and eurozone markets also 'ripped though many Asian equity markets, which if sustained could affect the region's future economic prospects,' the Washington-based organization said.

The report was released ahead of the IMF's annual meeting with the World Bank on Friday and Saturday.

The IMF expects China to grow more than 9 per cent annually in 2011-12 while India is projected to expand 7.5 to 7.75 per cent annually during the same period.

For emerging Asia, while the slowdown in the US and Europe will dampen external demand, structural reforms are needed to enhance the role of domestic demand in growth, the IMF said.

For current surplus economies in emerging Asia such as China and South Korea, 'a stronger exchange rate, combined with structural reforms, would raise domestic purchasing power and allow external rebalancing, while also containing inflation pressure,' the IMF said.

Also in China, 'the transparency and effectiveness of monetary policy should be enhanced by relying more on interest rates than quantitative measures of monetary control,' the report said.

'Given Asia's large and rising systemic importance, steady and well-paced rebalancing in Asian economies would help foster more balanced growth in its trading partners as well,' the IMF said.

In Japan, the March disaster knocked out many manufacturing facilities in the north-east and disrupted supply chains. However, the supply constraints 'have been easing, confidence has picked up, and activity is starting to rebound,' the IMF said.

Japan's economy is expected to contract by 0.5 per cent in 2011, but growth is projected to reach 2.25 per cent in 2012 with activity sharply rebounding on reconstruction investment in disaster-hit areas.

Inflation in Asia is projected to average 5.25 per cent in 2011, before receding to 4 per cent in 2012, the IMF said. But inflation pressures vary across the region - higher in economies with sustained strong growth and positive output gaps. In Japan, prices are expected to remain broadly flat, the report said.

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