IMF raises Asia growth projections

The International Monetary Fund (IMF) upped its GDP growth projection for Asia in 2010 to 8%, in its latest regional economic outlook.

This represents a one percentage point rise from the IMF’s last Asia Pacific regional report in April, as it says growth in the first half of 2010 proceeded “well above trend” in almost all regional economies.

In 2011 the IMF forecasts growth in Asia will moderate to 7%, while for emerging Asia it predicts growth of 9.5% in 2010 and 8% in 2011.

China, India and Indonesia are set to grow rapidly and “lead the Asian recovery”, says the report. (article continues below)

In China, the IMF projects GDP growth of 10.5% in 2010, slowing to about 9.5% in 2011. Meanwhile, Indian GDP growth is expected to reach about 9.75% in 2010, before moderating slightly to 8.5% in 2011.

“The short-term baseline outlook for Asia remains positive, with growth expected to settle at more sustainable, but still high, levels,” says the report.

The report also notes that Asia has regained all of the ground that it lost with the export collapse during the financial crisis. “By August 2010, overall Asian exports were at pre-crisis levels, although still about 10% below pre-crisis trends,” it says.

Since then, however, export growth has slowed from these cyclical highs towards rates that are closer to historical averages, says the report. As a result, and reflecting strong domestic demand, the IMF forecasts Asia’s current account surplus to fall to about 3% of regional GDP in 2010 and 2011, from about 5% in 2007.

The IMF says that the main risk to its outlook is the external environment. “Despite Asia’s strong economic and policy fundamentals, important trade and financial linkages with ad­vanced economies suggest that a further deterioration in global financial conditions would have important repercussions for the region,” says the report.

“Should downside risks materialise, countries generally have ample room to ease policies in response. It is time also to look ahead to the medium term, when Asia will have to rely increasingly on domestic demand for its growth.”