Asia: Consolidating Recovery, Building Sustainable Growth

Regional growth forecast at 8 percent

Emerging signs of inflationary pressures in some economies

Continued large capital inflows may pose challenges for policymakers

In view of the strong expansion under way, the report says Asia has reached the threshold to normalize policy stances across the region.

In their twice-yearly overview of the Asia and Pacific region, IMF economists say growth in the first half of 2010 was well above trend in almost all regional economies, prompting the Fund to revise up its growth forecast to 8 percent, nearly 1 percentage point higher than its April forecast.

“The rebound in global manufacturing fueled exports and investment in the region, and private consumption remained strong as labor markets continued to improve, ” said Anoop Singh, head of the IMF’s Asia and Pacific Department, at the launch of the Asia and Pacific Regional Economic Outlook in Jakarta, Indonesia. The report is being launched in Indonesia and Singapore.

Variable growth

Economies across Asia are expanding strongly, with China and India leading the way with projected growth rates of 10.5 percent and 9.7 percent respectively. Indonesia is expected to grow by 6 percent, while growth in Japan is projected at 2.8 percent. The report also predicts that regional growth will moderate to a more sustainable pace of 6.8 percent next year.

Inflationary pressures are continuing to build, according to the analysis, while prices in some property markets are growing at double-digit rates. IMF economists believe the time has come for countries in the region to normalize monetary and fiscal policy stances.

The report highlights the need for further tightening of monetary policy in many countries, including through greater exchange rate appreciation. A faster withdrawal of the fiscal stimulus put in place during the global financial crisis would also help guard against the risks of overheating.

Investors pour into Asia

Managing capital inflows is another major policy challenge for Asia. Many investors have been attracted to the region by its bright growth...