India, China at forefront as Asia leads global recovery: IMF

WASHINGTON - India and China will again take the lead with 8.8 and 10 percent growth this year as Asia continues to lead the global recovery growing at about 7 percent for two years, IMF officials say.

“By the end of 2009, output in most of Asia had returned to pre-crisis levels even in those economies that were hit hardest by the crisis,” Anoop Singh, International Monetary Fund’s Director of the Asia and Pacific Department, told reporters Saturday.

“After the deepest recession in recent history globally, we know that Asia is leading this global recovery,” he said in a briefing on the region. “In fact, activity in Asia has rebounded fairly swiftly over the past year and in the first quarter of 2010.”

While the pattern of recovery has varied in Asia, “both the more domestically oriented economies such as China, India and Indonesia as well as the more export-oriented economies are experiencing strong upturns,” Singh added.

Singh identified two factors as underpinning Asia’s strong performance. First, the global and domestic inventory cycles are boosting Asia’s industrial production and exports. Second, private domestic demand in the region is expected to remain robust even as macroeconomic policies begin to withdraw stimulus.

Asked if rising inflation in South Asia will pose a serious threat to the region’s recovery, Singh said it is not surprising that inflation has begun to turn up as output gaps in much of Asia have begun to narrow.

“We do expect output gaps to close this year in a number of economies including countries in South Asia such as India,” he said noting there is a significant contribution to higher inflation coming from food and energy prices.

As there are reasons for an increase in food and energy prices, Singh said one was not yet seeing an increase in underlying inflation at the same rate as the rise in overall inflation.

Noting a clear commitment in all countries to ensure that inflationary expectations do not broaden to result in higher underlying inflation, he said monetary policy was already being tightened in a number of countries.

For example, India moved the second time just last week, Singh said. “So I think that what we are seeing is, first, the narrowing to the disappearance of output gaps in Asia, including in India, and we are seeing rising inflation expectations.”

“But we are also seeing firm, successive measures by a number of countries in Asia, including India, to ensure that we don’t see a rise in general underlying inflation.”

The Indian authorities are very mindful and are taking a calibrated approach to withdrawing stimulus, Kalpana Kochhar, Deputy Director of the Department added.

On Soth Asian countries’ efforts to form a regional grouping, she said though there hasn’t been much success in forming a grouping so far, the prospects for that are very good now.

“You have a very rapidly growing large economy in the South Asia Region, and that is India, and India is now also integrating much more with the rest of Asia,” Kochhar said citing the example of rapidly growing trade between China and India.

“Of course, it is mostly imports from China-but it has grown very rapidly in recent years,” she said. “So prospects for integration both in the South Asia region amongst themselves and with the rest of Asia I think have greatly improved and will continue to do so.

(Arun Kumar can be contacted at arun.kumar@ians.in)