Asia: Brighter Prospects, But At Risk from Fragile Global Economy

Economic activity in Asia expected to gain momentum this year

Policy flexibility needed to support stable, noninflationary growth

China: key challenge of catalyzing consumption

Speaking at the IMF-Bank Spring Meetings, Anoop Singh said Asia’s economy is expected to grow at 6 percent this year—roughly the same as in 2011—before gradually recovering to about 6½ percent in 2013.

But the fragile state of the world economy continues to pose challenges for the region, in particular, the debt crisis in the euro area, the risks that could push energy prices sharply higher, and the volatility of capital flows.

“Strong economic and policy fundamentals have helped buffer the region’s economies against spillovers from the euro area, but a further sharp fall in exports to advanced economies and capital outflows would severely impact Asia both directly, and through knock-on effects on domestic demand,” said Anoop Singh.

Large Asian economies lead the recovery

In recent months, emerging Asia has been the fastest growing region in the world, led by China and India.

China’s growth is forecast to moderate, to about 8¼ percent in 2012 as the country pursues more balanced growth and the authorities aim to engineer a soft landing. The economy is likely to gather momentum in the second half of this year and 2013, reaching growth rates of 8 ¾ percent in 2013.

Inflation in Asia is also expected to decline modestly in 2012 to around 3½ percent, partly in response to an easing of food and commodity prices.

“Inflation is declining in many countries, but it remains close to, and even above, some explicit and implicit target ranges,” said Singh “and therefore there is a need to be concerned as overheating pressures can again build up.”

Flexible policy response needed

Singh said that the most immediate policy challenge was to calibrate the right amount of support for stable...