Top Policy Challenge for Asia: Exiting from Stimulus

Asia to lead recovery, sustained by improved labor market, financial conditions

Call to accelerate unwinding of simulative policies

Support for continued rebalancing of Asian economies

Despite the turbulence in financial markets in the first half of this year, and variable growth throughout the region, Asia as a whole, continued to perform strongly in 2010.

“We expect Asia to continue leading the global recovery in the near term and to grow by 8 percent in 2010, before moderating to a more sustainable rate of about 7 percent in 2011,” Anoop Singh, the head of the IMF’s Asia and Pacific Department, told journalists at a press briefing on the sidelines of the IMF-World Bank Annual Meetings.

Off the back of these favorable conditions, authorities throughout Asia have started withdrawing fiscal stimulus and normalizing macroeconomic policies.

Measured pace

“Thus far, the pace of exit remains rightly measured, and monetary and fiscal policies are still generally accommodative, but the region can clearly accelerate its pace,” said Singh.

The speed of the recovery has varied across Asia, with China and India continuing to lead the region’s growth. China and India are expected to grow by 10.5 percent and 9.7 percent respectively this year.

Economic activity accelerated in many of Asia’s low-income countries, thanks to higher external demand, strong investment in the commodity sector, and continuing accommodative macroeconomic policies.

In Sri Lanka and Mongolia, for example, the economic outlook has also improved markedly, partly helped by Fund-supported programs.

Meanwhile the outlook in Japan remains far weaker.

Improved labor markets

Asia’s overall growth is expected to be sustained by...