Asian economies could see a modest recovery next year, boosted by stronger export demand and stimulus spending, the International Monetary Fund said Wednesday.
Trade-driven Asia has been hit harder than expected by the worst global downturn since the 1930s, though many economies are stronger than they were during the region’s 1997 financial crisis, the Washington-based IMF said in a report.
“A modest recovery is projected in 2010, underpinned by a pickup in global growth and a boost from expansionary fiscal and monetary policies,” it said.
Japan, the region’s economic giant, should eke out 0.5% growth in 2010 after shrinking by 6.2% this year, according to the IMF. It said South Korea, Taiwan and other newly industrialised economies were forecast to grow by 0.8% following a 5.6% contraction this year.
Growth for China, India and other emerging economies is forecast to rise to 5.3% after falling to 3.3% this year, the IMF said. The 185-nation group advises governments on development and provides loans for balance of payments problems.
But the IMF also cautioned that Asian economies face risks if global demand weakens further and said they can do more to reduce reliance on exports by boosting domestic consumption.
“A key concern is that a deeper or longer recession in advanced economies outside Asia will reduce external demand even further, with negative repercussions for exports, investment and growth,” it said.
The main challenge will be to “achieve a sustained reduction in the region’s reliance on exports as a source of growth,” the IMF said. Though China, Japan and others have launched stimulus plans, it said, “there is scope to do more to bolster domestic demand in a number of economies” that can afford it.
Asia had been expected to suffer less from the global crisis due to its strong banks and lack of exposure to US mortgage debt that hurt Western institutions, but was hit hard by the collapse of trade, the IMF said.
China has shown signs of recovery, with March factory output and auto sales improving, helped by Beijing’s 4 trillion yuan (US$586 billion) stimulus. But economists warn any rebound could be hurt if trade declines further.
China’s growth is forecast to rise to 7.5% in 2010 after falling to 6.5% this year –half of 2007′s 13% rate. India’s growth is expected to climb to 5.6% next year after dropping from 7.3% in 2008 to 4.5% this year.
In Asia’s worst contraction, Singapore’s trade-dependent economy is expected to shrink by 10% this year and by another 0.1% next year, according to the IMF.
Governments have to be ready to use public money to strengthen struggling banks and to spot problems before they infect healthy institutions, the agency said.
It noted that countries including India, Indonesia, China and Japan have tried to shore up financial stability by extending corporate credit, expanding bank deposit guarantees and other measures.
“However, the authorities should be prepared to do more if necessary.”