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India, China to drive strong growth in emerging Asia : IMF

India, China to drive strong growth in emerging Asia : IMF
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First Published: Thu, Apr 12 2007. 10 49 AM IST
Updated: Thu, Apr 12 2007. 10 49 AM IST
Emerging Asian economies, driven mainly by China and India, will expand at a brisk but slightly lower pace during 2007 as U.S. influence declines, the International Monetary Fund said.
The region will see 8.4% growth, down marginally on last year’s 8.9%, because a sharper-than-expected slowdown in the United States is set to have only a muted effect, the IMF said in its latest global report.
Nevertheless, chief economist Simon Johnson warned of a lingering risk that the Chinese and Indian economies could overheat despite recent measures meant to rein in racing growth.
China’s economy, the world’s fourth-largest, is expected to grow 10% in 2007 and 9.5% in 2008, down from 10.7% in 2006, according to the World Economic Outlook report.
India meanwhile is forecast to expand by 8.4% this year and by 7.8% in 2008, down from 9.2% in 2006, the IMF said, while cautioning that the Asian powers could again perform better than expected.
“China and India have continued to outperform expectations,” it noted. “A similar pattern could recur in 2007.”
Johnson told a press conference here presenting the report that fixed asset investment in China had grown at a “torrid pace” and there was still a risk of overheating.He said: “It is unclear whether the Chinese economy will slow consistently in response to efforts to rein in rapid credit growth given the constraints on monetary policy posed by the tightly managed exchange rate.”
As for India, he said, “spare capacity in the economy remains very low and overheating remains a risk despite recent monetary policy tightening.”The US economy, traditionally a major engine for growth in the region, is having less of an impact, according to the report.
This is partly down to growing economic links between Asia’s economies and China’s surging demand. From 2000 to 2005, exports to China as a percentage of all exports had grown for all countries, in some cases sharply, it noted.
“Regional economies have less direct exposure to the United States than at the beginning of the decade, while their exposure to China has grown,” the IMF said in its World Economic Outlook report.
Overall exports from Asia were only marginally affected by the US slowdown which was being driven by the housing sector, while the demand for electronic goods -- one of the region’s most important exports -- remained high.
“The importance of the United States as a destination for exports has been declining in most countries, with the important exception of China, while the role of intraregional trade has been rising.”
Johnson concurred, saying it was beneficial for the wider region.“Elsewhere in emerging Asia, the near-term outlook remains very positive,” he told reporters, “partly reflecting growing intraregional trade linkages and China’s strong economy, as well as prudent macro-economic measures.”
Indonesia, the region’s third-most populous country, was set to see growth pick up from 5.5% last year to 6.0% this year, the IMF said.An important factor for that was a strengthening in domestic demand spurred by interest-rate cuts, it said.
Other Southeast Asian economies would mostly see marginally slower growth, with Thailand’s economy expanding 4.5% this year from 5.0% last year, and Singapore’s growth down more steeply from 7.9 to 5.5%.
Further north, Taiwan’s economic growth will slow from 4.6 to 4.2%, the report predicted, and South Korea’s from 5.3 to 4.6%.A decade after the Asian financial crisis, the report warned that financial markets in the region remained vulnerable to any unanticipated rise in global risk aversion.It also highlighted emerging threats to growth, saying bird flu, which has killed about 170 people across the world but mostly in Asia, continued to pose a risk.
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First Published: Thu, Apr 12 2007. 10 49 AM IST
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