I.M.F. Raises Growth Forecasts for Asia

I.M.F. Raises Growth Forecasts for Asia
By BETTINA WASSENER
Copyright by The New York Times
Published: October 29, 2009
http://www.nytimes.com/2009/10/30/business/global/30imf.html?hpw


HONG KONG — The International Monetary Fund raised its outlook Thursday for growth in Asia for this year and next, reflecting the region’s rapid rebound from the depths of the global downturn in recent months.

But acknowledging the growing debate about whether the time is right to unwind some of the extensive stimulus measures that have been put in place around the globe, the fund added that in most of Asia a return to higher interest rates was “unnecessary” now.

In its economic outlook for Asia and the Pacific region, released in Seoul, the I.M.F. said it expected the region as a whole, including Japan, Australia and New Zealand, to manage growth of 2.8 percent this year and 5.8 percent in 2010 — in both cases about one and a half percentage points more than it had projected in May.

The pace is substantially better than is expected in the most developed countries: The I.M.F. expects the Group of 7 to grow just 1.3 percent next year.

“Just as the U.S. downturn triggered an outsized fall in Asia’s G.D.P. because international trade and finance froze, now their normalization is generating an outsized Asian upturn. For this reason, the rebound in economic activity has been fastest in the export-dependent Asian economies that were hit most severely at the end of 2008,” the I.M.F. said in its report.

“As U.S. electronics retailers continue to rebuild their inventories, Asian exports will continue to recover — a process that could go on for some time, since U.S. imports are exceptionally low relative to sales, suggesting that retailers will need to step up their orders sharply to replenish their supplies,” the report added.

China will enjoy by far the fastest growth — 8.5 percent this year and 9 percent in 2010 — while India is expected to grow 5.4 percent in 2009 and 6.4 percent next year, according to the I.M.F.’s new forecasts.

Japan, by contrast, badly trails the region: Its economy is projected to contract 5.4 percent this year and achieve only 1.7 percent growth in 2010.

The I.M.F.’s revisions echo those at other institutions and banks, which have rushed to raise their projections in the light of a faster-than-expected recovery in most of Asia.

The Asian Development Bank, for instance, said last month that it expected China to grow 8.2 percent this year — 1.2 percentage points higher than it had forecast in March — and 8.9 percent next year. The A.D.B. also projected that developing Asian countries as a group would grow by 3.9 percent, rather than 3.4 percent.

The I.M.F. said robust growth next year would still be well below what the region had managed in recent years.

Nevertheless, the recovery, especially in buoyant Asia, has ignited a debate about when — and how rapidly — to start withdrawing some of the extraordinary economic support measures that were introduced after Lehman Brothers’ collapse 13 months ago.

These included deep rate cuts around the world, as well as spending packages and other policy tools designed to help struggling companies, banks and consumers through the downturn.

Earlier this month, Australia’s was the first major central bank to start nudging the cost of borrowing up again, and Norway followed suit Wednesday with an increase of a quarter percentage point in its key interest rate.

But analysts at the I.M.F. and elsewhere caution that the process of withdrawing such life-support measures will have to balance the need for continued support carefully against the necessity of weaning their economies off such props before inflation and budget pressures build up.

The I.M.F. said that the recoveries in China, India and Australia had been so rapid that conditions were now right for some policy adjustments. Elsewhere, however, recovery remains tentative, inflation risks low and asset price increases muted.

For those reasons, the I.M.F. suggested that it would be preferable for Asian countries to use other, more targeted measures than increased interest rates to deal with rising asset prices, at least initially, rather than “the blunt instrument of monetary policy.”

New Zealand’s central bank said Thursday that it expected to hold interest rates at a record low at least until July, quashing speculation that an economic rebound would lead to tightening as early as January, Reuters reported from Wellington. The signal that the Reserve Bank of New Zealand was in no rush to hike rates from the record low of 2.5 percent sent the currency tumbling the most in six months. Investors are still expecting a rate rise as early as March.