India, China lead growth in Asia, but momentum easing

April 12th, 2008 - 11:41 am ICT by admin  

By Arun Kumar
Washington, April 12 (IANS) Led by China and India, growth remains high in Asia, and domestic demand is still robust, but key activity indicators suggest that momentum is easing, according to a new International Monetary Fund (IMF) report. Despite another year of strong growth in 2007, signs of moderating activity appeared in Asia late in the year and into early 2008 in line with the US-led global slowdown, said the Regional Economic Outlook for Asia and Pacific in IMF’s World Economic and Financial Surveys.

Inflation pressures are rising across most of Asia. Headline inflation momentum has increased noticeably in India and the Asean-5 in recent months and has picked up anew in China, after having levelled off in late 2007, the report said.

Core inflation has also risen, as food and commodity price rises have begun to generate some second-round effects. Moreover, producer price inflation is now running above headline inflation across much of the region, pointing to the potential for further price pressures ahead.

GDP growth remained strong throughout Asia in 2007, although momentum tailed off in the fourth quarter. For the region as a whole, growth in 2007 was 7.4 percent, with the emerging economies recording growth of more than 9 percent, led by China and India.

Both export and import growth have picked up in recent months, although this development partly reflects price effects. Given the still-robust pace of activity, inflation pressures have risen as food and commodity price increases have begun to generate some second-round effects; producer price pressures have risen as well.

Domestic demand was again an important source of growth across much of Asia in 2007. Activity in China and India continued to be investment-led.

Current account surpluses and reserve accumulation continue to be prominent in the region as exchange rate appreciation, particularly as measured on an effective basis, remains modest, the report said.

Exchange rate trends have become less uniform across Asia. The region’s currencies as a whole have appreciated marginally in nominal effective exchange rate (NEER) terms since the October 2007 Regional Economic Outlook.

Emerging Asian currencies as a group have weakened somewhat, led by the newly industrialised economies (NIEs) and India, it said. Notably, the Chinese renminbi, while appreciating further against the US dollar, has appreciated only modestly in NEER terms.

In general, the report said, 2008 is shaping up as a challenging year for Asia. Activity in most economies remains fairly buoyant, but growth in the US and, to a lesser extent, Europe is slowing sharply. Given its extensive trade and financial linkages with the rest of the world, Asia is unlikely to delink.

At the same time, inflation pressures are picking up across much of the region. Moreover, the still-unfolding global financial crisis adds a dimension of uncertainty to the picture, and the balance of risks remains on the downside.

However, most countries in the region are well placed to undertake counter-cyclical policies should these prove necessary.

Confidence indicators also point to a slowing pace of activity. Asia’s trade performance remains positive, despite lacklustre electronics exports.

Part of the explanation is strong growth of exports to “non-traditional” markets in Latin America, eastern Europe and Russia, and the Middle East. Import growth has picked up in recent months, even when excluding oil, suggesting some strength in domestic demand, the report said.

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