Thaindian News

By Arun Kumar
Washington, Oct 1 (IANS) As the global economy recovers from its worst crisis in decades, India and China will lead the expansion this year and will grow at rates of 5.4 and 8.5 percent, respectively, according to the International Monetary Fund (IMF).

Boosted by large policy stimulus that is increasing demand from domestic sources and a turn in the global manufacturing cycle, the two Asian giants are leading the rebound in emerging and other developing economies, it said in the October 2009 World Economic Outlook (WEO).

Describing the recent, swift turnaround of economic fortunes in Asia as remarkable, the outlook noted that at the onset of the crisis, Asian exporters were hit hard by the collapse of external demand.

The deterioration of activity was especially rapid for the more export oriented economies, it said. Only China, Indonesia, and India escaped a severe recession, the result of a large policy stimulus and, in the case of India, less dependence on exports. Extensive fiscal and monetary support helped ease tensions in financial markets and helped soften the decline in domestic demand, even bolstering demand in China and India, the WEO said.

In the baseline projections, growth momentum will build during the second half of 2009, forming the basis for a generally moderate recovery in 2010, as external demand from advanced economies strengthens, the report said. The WEO was released Thursday in Istanbul where the IMF-World Bank group is holding its annual meeting this year.

The advanced economies, hit particularly hard by financial crises and the collapse in world trade, are showing signs of stabilization, driven mainly by an unprecedented public policy response, the IMF report said.

The shape of the recoveries will vary, however, with economies that suffered financial crises likely to experience weaker recoveries than those that were affected mainly by the collapse in global demand, it said.

With the recovery gaining strength, the policy challenge in Asia is to determine when and how to withdraw policy support while ensuring a successful transition to more balanced medium-term growth, the WEO said.

Asia’s dependence on export demand has contributed to rising global imbalances and has made the region vulnerable to global demand developments, it said.

A return to past growth and demand patterns is unlikely-given drawn-out adjustments in the United States and Europe-and many Asian economies therefore need to shift their composition of growth to be more focused on domestic demand, WEO suggested.

From this perspective, some caution is warranted about the sustainability of the rapid level of credit growth in a few countries, especially China.

In some economies like India, Japan, Malaysia, concerns about fiscal sustainability must be addressed, including through development of credible medium-term consolidation plans, the WEO said.

Although Asia’s export-oriented economies were battered by the abrupt global downturn, the economic outlook for the region improved markedly during the first half of 2009.

Recent developments point to a strengthening of domestic demand and exports, but questions remain about whether the rebound can become a self-sustaining recovery-ahead of a stronger growth pickup in the rest of the world, the WEO said.