Infrastructure works, personal spending enough to carry the day, says DBS chief

(SINGAPORE) Asia’s robust growth will be affected but not derailed by what looks increasingly like a stalling of growth in the US and Europe, said DBS chief executive Piyush Gupta.

Infrastructural development and personal consumption in Asia will carry the region and take up much of the slack from the global economies, he said yesterday.

Asia today is pretty much like the US in the 1950s, with governments in the region spending on building dams, railroads and roads and there is also the rise of the middle classes, he said.

‘Asian infrastructure investment is where it was in the US in the 1950s.’

Mr Gupta was speaking last night at the Singapore Indian Chamber of Commerce & Industry-DBS awards dinner.

‘Asia’s infrastructure spending will pump growth rates up. Between infrastructure spending and personal consumption, Asia will be able to generate its own demand.’

Between now and 2020, infrastructural spending is estimated to come to US$8 trillion.

Wealth creation in Asia is the fastest growing with reports of more millionaires being formed in the region than anywhere else in the world, he said. ‘Asia is generating more of our own demand.’

The tipping point came this year, he said.

According to DBS economists, 20 years ago, for every dollar incremental growth in the US, Asia contributed less than 50 cents.

But today, for every dollar the US puts out, Asia will put out 102 cents, said Mr Gupta.

Asia’s consumption rate is up 70 per cent compared with sub-one per cent in the rest of the world, he noted. ‘While I am not overly sanguine of the global economies and credit expansion, I am sanguine about Asia.’

Last year, 138 Asian corporates were among the Fortune 500 companies and they were the fastest growing ones, he said

As for the silver tsunami which will hit Japan, China and Singapore, the ageing population will create demand and business opportunities in areas such as health care and financial planning and other related services, he said.

There are political risks to doing business in many Asian countries as they face challenges in the growing disparity between the poor and the rich, Mr Gupta said in answer to a question from the floor.

China faces significant challenges in managing its social equity, between its richer coastal areas and the poorer inland economies, and increasing pressure on wages, he said.

The financial crisis has also made borrowing in US dollars more expensive for Asian countries.

‘Asian economies are dollarised significantly,’ he said.

For instance, Chinese banks are borrowing US dollars in Hong Kong to lend onshore, pushing up US interest rates there by 100 basis points over the wholesale Libor rate, he said.

Indonesian banks are facing a similar situations, he said.

Source: Business Times, 6 Jul 2010

SYDNEY: Asia’s economies signalled they are best placed to weather Europe’s debt crisis this week, as results released yesterday – from China’s exports to job growth in South Korea and Australia – surpassed analysts’ forecasts.

China’s exports jumped the most in six years and property prices rose at a near-record pace, signs that the economy is withstanding the debt crisis in Europe and remains at risk of overheating.

Unemployment rates in South Korea and Australia fell last month, and Japan said its economy expanded more than previously estimated in the first quarter.

The resilience may amplify American calls for Asian nations to reduce their reliance on exports and increase their contribution to a world recovery clouded by Europe’s fiscal woes.

China has so far resisted letting its yuan rise against the United States dollar, seeking to shield its exporters, while Japan’s central bank has flagged the recovery in refraining from stepping up injections of cash.

‘These numbers are very positive,’ said Mr Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. ‘Asian countries have pretty strong fiscal positions and they’ve got growing domestic demand which will help insulate against any shocks out of Europe.’

Also, the ‘sharp pick-up in China’s trade surplus will not go unnoticed in Washington, where there will be more pressure on the US administration out of Congress to take a tougher line with China’ on its currency, he said.

Regional stocks surged yesterday after Chinese shipments abroad climbed 48.5 per cent last month from the figure a year earlier. China’s property prices also rose at the second-fastest pace on record last month, jumping 12.4 per cent from the figure a year earlier, a sign that the government crackdown on speculation has yet to avert the threat of an asset price bubble.

Japan’s economy expanded at an annualised 5 per cent rate in the three months ended March 31, quicker than the 4.9 per cent rate reported last month, driven by exports and an upward revision to consumer spending.

Australia said yesterday its employers added 26,900 workers last month, more than the 20,000 forecast by analysts, pushing down the jobless rate to 5.2 per cent from 5.4 per cent – almost half the level in the US and Europe. Payrolls rose for the third straight month, underscoring the central bank’s assessment that economic growth will accelerate this year as a mining investment boom stokes hiring.

Meanwhile, South Korea’s unemployment rate declined last month to the lowest level since October 2008, as the strengthening economy prompted companies to hire.

The jobless rate fell to 3.2 per cent from 3.7 per cent in April, after reaching a 10-year high of 4.8 per cent in January, Statistics Korea said yesterday.

Asia’s growth contrasts with several European nations that may see their gross domestic product shrink, with the risk of a double-dip recession, Mr Andrew Burns, lead writer of the World Bank’s Global Economic Prospects 2010 report, said in a telecast from Washington on Wednesday. He did not single out European countries by name.

East Asia would not be unscathed by a return to recession in the advanced economies, he said. ‘That’s going to have important knock-on effects in East Asia, particularly because it is a very heavy trading region.’

Bank of Korea cited the European situation in keeping its benchmark interest rate at a record low 2 per cent yesterday.

Asia will continue to lead the global rebound, International Monetary Fund deputy managing director Naoyuki Shinohara said on Wednesday.

That brings its own challenges, with increasing capital inflows and the risk of overheating if policymakers fail to take ‘appropriate’ action, he said in a speech in Singapore.

BLOOMBERG

Source: Straits Times, 11 Jun 2010

IMF urges govts to be ready to take appropriate action

(SINGAPORE) The International Monetary Fund (IMF) warned Asia yesterday of the potential spillovers of the European debt crisis, saying it could dampen trade, make capital flows volatile and overheat economies in the region.

‘Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand,’ IMF deputy managing director Naoyuki Shinohara told a forum in Singapore.

On the financial front, he said major credit problems could result in a ‘significant spillover’ through funding channels, especially where banks were dependent on wholesale funding.

There was also increased uncertainty and potential for volatility in the outlook for capital flows, Mr Shinohara said at the forum hosted by the Monetary Authority of Singapore.

He said Asia’s bright growth prospects, together with low interest rates in major economies, would likely attract more capital that could ‘lead to risks of overheating in some economies if appropriate policy action is not taken. ‘On the other hand, further increases in global risk aversion could see capital flows change direction quickly.’

Mr Shinohara called on Asian governments to be wary of the potential risks and be prepared to take appropriate action.

‘The key will be for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold,’ he said.

‘With Asia’s economic muscle growing, the policy choices made in this region will have an important impact on the global economy,’ he added.

Greece is at the epicentre of a mounting debt crisis that threatens to spread across the eurozone and has pulled down the euro to four-year lows.

Asian markets have also been affected by the impact of the crisis.

Mr Shinohara said there was a risk that sovereign debt problems being experienced in some eurozone countries could spill over to others.

He said the strong fiscal position of most Asian economies provided the ‘space’ to respond flexibly to the European crisis.

‘In the event of spillovers from Europe, there is ample room in most Asian economies to pause the withdrawal of fiscal stimulus,’ he said. — AFP

Source: Business Times, 10 Jun 2010

ASIA’S economic growth could suffer in the next few quarters as exports to the West slow sharply due to sovereign-debt troubles in Europe and a lacklustre recovery in the US, Royal Bank of Scotland (RBS) analysts warned yesterday.

Growth in China, which has been a major engine of the recovery in Asia, is also likely to slow as the effects of its stimulus measures wear off, dragging down the pace of expansion elsewhere in Asia.

The result: A period of slower growth than in the boom years before the latest financial crisis, or in the rebound since late last year.

‘One leg of Asia’s growth is going to be chopped off in the coming months,’ said Sanjay Mathur, head of research and strategy for non-Japan Asia at RBS. ‘Exports are going to slow down.’

As a result, ‘growth next year will start to slow’, he said. A slower-growing Europe, coupled with a weaker euro, means demand for Asia’s exports is likely to fall.

Even China is starting to look ‘a lot shakier’, he said. ‘We are starting to see industrial activity show some kind of fatigue.’

The purchasing managers’ index for China published by HSBC and Markit fell to 52.7 in May – the lowest reading in 11 months – from 55.2 in April, suggesting that while Chinese manufacturing activity is still expanding, the pace of growth is slowing.

In stock markets, the result could be a ‘major downgrade in earnings expectations’ as investors adjust to a slower growth outlook for the broader economy, Mr Mathur said. ‘We are in for a fairly rough ride in the financial markets.’

But a period of slow growth in Asia could benefit the region by forcing policy-makers to make structural changes to their economies needed to sustain growth in the long term without relying heavily on private consumption demand in the West, he said. ‘Once we see that growth is not going to be the same as what we’re used to, we will see greater efforts towards improving domestic demand.’

That would include more efforts to promote small and medium enterprises, and more incentives to boost the services sector – reducing the reliance on manufactured exports for economic growth.

Source: Business Times, 9 Jun 2010

As outside demand will be low, Asia will have to search for stronger domestic driver of growth

AS THE world climbs out of the deepest recession in recent history, Asia is leading the global recovery. By end-2009, output and exports had returned to pre-crisis levels in most of Asia, including the hardest-hit economies.

In our recently released Asia-Pacific Regional Economic Outlook, we envisage that, on average, Asia will grow by 7 per cent this year and next, buoyed by growth in China, India and other countries (see Figure 1).

While activity in advanced countries remains held back by high unemployment and weak household and bank balance sheets, in Asia the picture is much more encouraging.

Singapore is a case in point. The economy has rebounded strongly from the recession, benefiting from the turnaround in global trade and financial markets as well as forceful counter-cyclical policies.

It is now firmly on a recovery path, although the external environment remains key to near-term prospects. Against this backdrop, monetary, fiscal and macro-prudential policies are appropriately aimed at curbing risks in the goods and asset markets – and exits from the extraordinary policy support of yesteryear are underway.

In the near term, we expect that Asia will continue to lead the global recovery. What underlies this robust growth picture? The recovery of demand in advanced economies, particularly the United States, is expected to fuel a re-stocking of inventories through most of 2010 that will boost Asian production and exports.

And while public stimulus is being phased out in some countries, growth should be sustained by the momentum that has developed in private domestic demand. Private consumption is growing on the basis of high asset values, growing consumer confidence and good labour market prospects, and private investment is being boosted by increases in capacity utilisation to more normal levels.

At the same time, the fragile nature of the global recovery still poses a risk for Asia. The global risks remain tilted to the downside, and a turn for the worse in the outlook for advanced countries or renewed negative shocks in world financial markets would present problems for the recovery in Asia as well as other regions.

For the first time in recent history, Asia is leading a global recovery and contributing an increasing share to global growth (see Figure 2). Also historically unprecedented is the fact that, this time around, Asia’s recovery is predominantly being driven by domestic demand.

Finally, capital inflows, which returned only slowly following previous downturns, are now surging into the region. These capital inflows partly reflect the extremely high levels of global liquidity, but are also a testament to Asia’s improved resilience and growth prospects.

The strong capital flows do, however, carry risks that will need to be carefully managed. These inflows have the potential to lead to overheating in some economies and to an increase in vulnerability to asset price booms and busts, inflation and macroeconomic volatility.

Asset price inflation in most of Asia has so far been contained, but the increase in excess liquidity in many economies does raise some concerns. We, therefore, welcome the measures that many policymakers are continuing to take to ensure macroeconomic and financial stability against the build-up of imbalances in local asset and housing markets.

Still, more may be needed to be done in the future if the region’s bright economic growth prospects and its widening interest rate differentials with advanced economies attract even more capital.

While the right package of measures varies across countries, in many of them it may be appropriate to allow more exchange-rate flexibility, which could forestall short-term inflows and help make financial conditions less accommodative.

Over the medium term, a key policy challenge for Asia will be to make private domestic demand a more prominent engine of growth and to rely less heavily on exports. In advanced countries, the recovery is likely to be sluggish by historical standards and domestic demand is likely to remain below pre-crisis levels for some time to come.

External demand will be smaller and Asia will have to search for a stronger domestic driver of economic growth. Since public stimulus cannot go on forever, that source will have to be private demand which will have to be nurtured through a package of policies, including many measures that are already being taken to strengthen and develop financial sectors, improve and widen social insurance systems and lessen the motivation behind precautionary saving.

Greater exchange-rate flexibility in the region should also be part of this package and would raise household incomes and consumption.

For our part, the International Monetary Fund (IMF) remains closely engaged with the region. Our policy dialogue with the Asian authorities is being deepened through initiatives such as a Regional Advisory Group which draws senior figures from Asia to advise us in our work in the region.

In addition, in July we will hold an important conference in Seoul, in partnership with the Korean government, to bring together senior figures from the region and draw lessons from Asia’s success in managing this crisis for the future and for the rest of the world.

The writer is director of the IMF’s Asia & Pacific Department

Source: Business Times, 19 May 2010

It suggests capital controls to temper volatile fund inflows into region

THE Asian Development Bank took the unusual step yesterday of warning investors that many Asian stock and bond markets may be near their top following ‘massive’ inflows of capital into the region in the wake of the global financial crisis that erupted at the end of 2008.

Capital controls could be among the policy options needed to temper volatile capital inflows that could lead to instability and promote asset bubbles as well as creating more general inflationary pressure, the ADB suggested.

Emerging Asian equities yielded a stunning 73 per cent return overall in US dollar terms in 2009, the ADB said in its latest Asia Capital Markets Monitor. However, this strong performance ‘limits the room for further gains’, it added.

The report covers the 11 markets of China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore,Taiwan, Thailand and Vietnam.

Asian local-currency bonds as well as equities have found favour with foreign investors over the past year or more, leading to a 41 per cent jump in the amount of such bond issuance (mainly by governments) in 2009.

‘The yield curve in local government bonds has steepened and that may continue on rising inflationary expectations and as monetary authorities increase official interest rates,’ the ADB said.

‘Foreign investors have rushed back into emerging Asian markets, attracted by the region’s swift recovery from the global crisis, a return of risk appetite and very low returns on assets in developed economies.’

Following the Lehman Brothers crisis in September 2008 there were fears that Asia, along with other developing regions of the world, would suffer a serious capital drought. The reverse has proved to be true and instead Asia has enjoyed a capital glut.

Asia appears to have escaped relatively unscathed from the Greek crisis with few signs that buoyant capital inflows into the region are being adversely affected, the ADB said. However, it warned that there are downside threats posed by this windfall for Asia.

‘While the return of capital flows is welcome, surges in short-term capital inflows could potentially leave countries vulnerable to a sudden reversal in portfolio investment and to sharp currency movements,’ said Srinivasa Madhur, senior director of the ADB’s Office of Regional Economic Integration.

Emerging Asian currencies have also strengthened against the US dollar under the impact of surging capital inflows. ‘Appreciation pressures are likely to intensify as capital inflows continue, which may fuel volatility in some currencies,’ the ADB report said.

‘The use of capital controls may be appropriate in circumstances where capital inflows are transitory and are adding undue pressure on exchange rates and where effectiveness of macroeconomic policy measures to counter the inflows and the exchange rate movements is uncertain.

‘Managing capital flows requires a wide array of policy measures; sound macroeconomic management, a flexible exchange rate regime, a resilient financial system and sometimes the use of temporary and targeted capital controls.’

Source: Business Times, 19 May 2010

TOKYO: Asian governments moved quickly yesterday to dampen the effects of the global turmoil triggered by the Greek debt crisis.

Japan’s central bank said it would inject more than US$20 billion (S$28 billion) in liquidity to calm markets, while its counterparts in India and Indonesia intervened in the markets to shore up their sliding currencies.

The Malaysian and South Korean authorities vowed to defend exchange-rate stability amid concern that Europe’s debt crisis will worsen.

In Singapore, the Monetary Authority of Singapore said it will respond to the market turmoil if there is a need. It ‘continues to monitor international developments closely as well as their impact on our markets’, a spokesman said in response to questions from Bloomberg News.

‘We will take appropriate actions where necessary.’

The yen’s surge and sharp falls in Tokyo share prices have alarmed Japanese policymakers.

The Bank of Japan offered 2 trillion yen (S$30.51 billion) in funds to financial institutions in an emergency market operation aimed at soothing market jitters.

Japanese Prime Minister Yukio Hatoyama said yesterday he was ‘very worried’ about the market moves and said the government will act accordingly if needed, without elaborating.

India’s rupee fell to a two-month low yesterday.

‘The Reserve Bank of India has supported the rupee intermittently since yesterday as things move from bad to worse in the global financial markets,’ said Mr J. Moses Harding, a Mumbai-based executive vice-president at IndusInd Bank Ltd.

‘I think the RBI is only trying to cushion currency weakness and check volatility rather than influence direction.’

Indonesia’s rupiah had its worst week since June, dropping as much as 2.7 per cent against the US dollar yesterday before recouping its losses on speculation the central bank intervened.

Officials in Indonesia and the Philippines ruled out imposing capital controls in response to the market turmoil.

The Indonesian monetary authority ‘is always in the market to smooth currency volatility’, said Ms Lindawati Susanto, head of currency trading at PT Bank Resona Perdania in Jakarta.

Australia’s central bank, meanwhile, warned that an escalation of Europe’s debt woes may cause a ‘sharp’ global economic slowdown.

BLOOMBERG, REUTERS, AGENCE FRANCE-PRESSE

Source: Straits Times, 8 May 2010

IT feels a lot like 1996. It was then, a year before the region plunged into chaos, when investors were rushing to Asia with nary a concern about hot money overwhelming developing economies. It ended in tears for governments, households and financiers alike. The good news is that Asia is standing its ground amid the global crisis. The bad news is that Asia is home to the next great asset bubble as tidal waves of capital rush its way. Expect lots of interest- rate volatility as central banks search for a balance between healthy growth and too much. And don’t be surprised if capital controls are a big part of the process.

Yes, that bane of investors’ existence is coming at least moderately into vogue. That was clear in Tashkent this week as policymakers at the International Monetary Fund (IMF) and Asian Development Bank (ADB) appeared less hostile to the idea of limiting the movement of money.

As Asia goes full circle from the late 1990s when capital controls were the financial equivalent of a mortal sin, investors are left with no choice but to adapt. That may not be as big a problem as many think. Anything that provides a shock absorber to keep Asia from overheating will be welcome.

‘I, as an investor, loathe capital controls in all forms, but we will certainly see more of them,’ Robert Parker, London-based senior adviser at Credit Suisse Group, told me in Tashkent, where the ADB held its annual meeting.

When I asked Naoyuki Shinohara, deputy managing director of the IMF, he admitted the institution is now more open to such barriers on capital. The key, of course, is not to go too far by inhibiting growth and scaring off foreign investment that’s needed to support it. It’s a breathtaking sea change when you consider how the IMF was militantly against controls 12 years ago. Back then, Malaysian prime minister Mahathir Mohamad was an international pariah for implementing them. In late 2006, investors chastised Thailand for slapping controls on markets.

The shift speaks to Asia’s predicament over the next couple of years. Asia has weathered the financial crisis, as just about anyone visiting Tashkent agreed. China and India beat the odds and continue to grow strongly. South Korea confounded the sceptics anew, as did Indonesia. Japan’s persistent malaise aside, Asia is hot and getting hotter. The trouble is, all this good press means Asia may have too much of a good thing on its hands. As the United States grapples with unemployment, the euro area is trying to avoid disintegration. Greece’s woes are reverberating through markets. There’s little confidence in Asia that a recent US$146 billion bailout will be the last in Europe. The buzz in Asia is who’s next? Even if concerns about contagion from Europe are overdone, Asia must brace itself for the opposite: fast-accelerating capital flows from West to East. With official interest rates in the euro area, UK, US and Japan close to zero, world markets are awash in liquidity searching for higher yields.

For many, that means Asia. Emerging markets need to take ‘urgent action’ on the surge of liquidity and capital flowing into their economies because they could spur inflation and trigger another crisis, according to a report last week by Standard Chartered plc. One area for concern is debt markets. While vastly improved since the 1990s, Asia still hasn’t built the deep, liquid bond arenas needed to stabilise growth. It means that lots of the capital flowing Asia’s way will end up in stocks and property. In a perfect world, investors would move into bonds as asset prices get frothy. The lack of dynamic secondary debt markets means many may just leave Asia, as opposed to diversifying into the region’s fixed-income investments. It makes Asia more volatile than it should be in 2010.

Capital controls could help ameliorate the problem. One way to go is to implement ‘targeted controls’, says Masahiro Kawai, head of the Tokyo-based Asian Development Bank Institute. He points to Brazil as an example. In 2009, Brazil implemented a tax on foreign purchases of stocks and fixed-income investment in a bid to stem the currency’s advance. Markets took the step much better than Thailand’s 2006 moves, which sent stocks plunging.

A point lost on few is that China and India, which have more conservative regulations than the West, weathered the crisis. With the G-20 nations dragging their feet on crafting a safer global financial system, governments will feel pressed to do what they can to tame markets.

Unlike in 1996, Asia knows a tsunami of cash is coming its way and that it comes with risks. Carefully employed, capital controls could siphon some of the heat from Asia’s latest hot-money challenge. Free-market champions are unlikely to concede that any curbs on money flows are appropriate. Smart people can, and will, debate this issue. It’s inevitable, though, and the sooner markets learn to live with it, the better.

William Pesek is a Bloomberg News columnist.

The opinions expressed are his own

Source: Business Times, 7 May 2010

ADB chief economist says region’s higher interest rates will keep drawing capital

Tashkent (Uzbekistan) – Capital inflows into Asia will not be significantly affected by European debt woes due to the region’s higher and faster-rising interest rates, the Asian Development Bank’s (ADB) chief economist said yesterday.

‘It’s true that the risk aversion is growing, but capital flows into Asia will not be significantly affected unless the European banking system as a whole gets hit,’ Mr Lee Jong Wha told Reuters on the sidelines of the ADB’s annual meetings here.

Asia’s economies have been recovering much faster than the rest of the world from the global financial crisis, resulting in interest rates in the region rising faster than elsewhere, providing better investment returns without any increase in risk, he said.

Concerns about debt problems in Greece and several other euro zone economies have rattled global financial markets since late last year, sparking concerns of a repeat of massive capital flight from Asian emerging markets.

A European Union-International Monetary Fund deal to rescue Greece from its crippling debt crisis will be announced today, a Greek government source told Agence France-Presse yesterday.

‘The deal is not yet signed but it will be concluded by Sunday,’ the source said. ‘It will be announced during (a) Cabinet meeting on Sunday…then presented in detail during a press conference by Finance Minister George Papaconstantinou.’

Greece is preparing severe measures to slash its budget deficit by 24 billion euros (S$44 billion) and unlock EU and IMF aid of up to 120 billion euros over three years. French Finance Minister Christine Lagarde also said yesterday the rescue package is expected to total between 100 billion and 120 billion euros.

Investors hope the aid deal will stop the crisis from sinking other fragile EU economies.

But the Greek government faces a battle with unions, which have been angered by the scale of the cutbacks, and social unrest could prevent Prime Minister George Papandreou from pushing through the austerity measures.

Thousands of people were gathering in Athens yesterday to protest against the spending cuts and new taxes. The public sector union has also called a four-hour strike for Tuesday, on top of a nationwide strike already set for Wednesday.

More than half of Greeks say they will take to the streets if the government agrees to the new austerity steps, according to a poll released last Friday by the newspaper Proto Thema.

ADB president Haruhiko Kuroda, echoing Mr Lee’s view at a news conference in Tashkent yesterday, said contagion to Asia from Greece’s debt crisis ‘has been limited or almost nil’.

Mr Lee said Japan and a few other fiscally weak economies in the region may come under closer scrutiny from investors, but high domestic savings and stronger current account positions kept them in better shape than the southern European economies.

Source: Sunday Times, 2 May 2010

WHILE the European Union grapples with the risk of a contagious sovereign debt crisis and Japan with deflation, most Asian economies are growing at a rate where their very success is threatening them with problems of possible overheating and inflation, according to the International Monetary Fund.

For the first time, Asia’s contribution to global economic recovery has outstripped that of other regions, the IMF said in its latest Regional Economic Outlook for Asia and the Pacific.

The stark contrast between Asia’s performance (led by China, India and Indonesia but excluding Japan) is underlined by looming fiscal crises in Europe and also by high unemployment, weak household balance sheets and anaemic bank credit in advanced economies, the IMF noted.

‘Asia’s faster recovery relative to the rest of the world seems to mark a break from the past. Although Asia’s GDP trend growth has exceeded that of advanced economies over the last three decades, this is the first time that Asia’s contribution to a global recovery has outstripped that of other regions.

‘In past recessions Asia’s recovery generally was driven by exports, this time it has also been reinforced by resilient domestic demand, particularly household consumption.’

Asia is expected to continue leading the global recovery, the IMF said. The global and domestic inventory cycle is likely to boost Asia’s industrial production and exports further for most of 2010 as demand finally recovers in advanced economies.

In many Asian economies, ‘private domestic demand appears to have sufficient momentum to sustain near-term growth, as high asset values, strong consumer confidence, and a gradual improvement in employment conditions are expected to sustain consumption.’

Meanwhile, net capital inflows to the region have surged, the IMF said. This is ‘a reflection of extremely high levels of global liquidity but also a testament to Asia’s improved resilience and economic framework.’

But it warned that ‘Asia’s relatively strong cyclical position may pose near-term risks, particularly if bright growth prospects and widening interest rate differentials with advanced economies lead to further capital inflows to the region.

‘These could lead to overheating in some economies and increase their vulnerability to a strong upswing in the credit and asset price cycles, with the propensity for a subsequent abrupt reversal.

‘Although asset-price inflation in Asia has so far been generally contained, the increase in excess liquidity in many regional economies over the course of 2009 raises concerns’ especially in asset and housing markets.’

The IMF report added that over the medium term, Asia’s main policy challenge will be to ensure that private domestic demand becomes a more prominent engine of growth.

Source: Business Times, 30 Apr 2010