Asia in the world economy :
Asia’s importance growing globally
Asia’s share of world growth set to continue rise :
Indian, Chinese economies fuelled by increasing
buying power :
Rebalancing needed to sustain growth Asia is set to become an
increasingly important engine of growth in the future even as it leads
the world out of the worst recession in over half a century, according
to a leading IMF economist.
Addressing an audience at the National Council of Applied Economic
Research (NCAER) in New Delhi, the head of the IMF’s Asia and Pacific
Department, Anoop Singh, said the region’s share of world growth is
likely to increase, enhancing Asia’s role as an economic powerhouse over
the next few decades.
On current trends, it is estimated that by 2030, Asia’s economy will
be larger than that of the United States and European Union combined
with the region’s share of world GDP swelling from a little under 30
percent closer to more than 40 percent. “Twenty years from now, Asia’s
economy as a whole will, on these trends, be larger than that of the G-7
[Group of Seven leading economies] and will be half the size of the G-20
[Group of Twenty advanced and emerging market economies],”said Singh.
“These are incredible trends taking place.” Growth rises, poverty
declines Asia’s rapid growth over the last two decades has been
accompanied by a dramatic reduction in poverty. In the East Asia and
Pacific region alone, the percentage of the population living on less
than $1.25 a day has dropped from 55 percent in 1990 to 17 percent in
2005. That figure is predicted to fall a further 10 percentage points
over the next six years. But Singh also sounded a note of caution.
“Asia still has the highest number of people in poverty and so the
catching up process needs to continue,” he said.
He also predicted that China and India will shadow the rapid
development of other Asian neighbors, with growth continuing for
decades, and the buying power of the Chinese and Indians also increasing
to almost match that of consumers in the United States and European
Union combined.
“China has already surpassed the level of output of other Asian
economies at a similar stage in their takeoff. But as we look ahead, the
larger Chinese population—and there is still ongoing urbanization and
social migration—is likely to sustain China’s growth for several more
years.” Reducing trade dependence The IMF official’s presentation to the
NCAER came during a two-day trip to India where he launched the Fund’s
economic outlook for the region. Although Asia is leading the recovery
of the world economy, the global crisis has underscored the
vulnerabilities stemming from overdependence on trade.
Singh said Asia’s resilience could be boosted by adding a second
engine of growth-domestic demand. He pointed out that those countries in
Asia which had sustained domestic demand had suffered far less from the
effects of the global slump than those heavily dependent on trade.
In recent months, the Fund has been stressing the need for Asia to
rebalance its growth by encouraging greater domestic demand, and the IMF
official highlighted four key policy priorities for countries to raise
domestic consumption and sustain investment.
* Enhance social safety nets
* Improve infrastructure
* Advance financial sector reforms
* Allow greater exchange rate flexibility
The path to rebalancing “Apart from the obvious welfare implication,
[enhancing social safety nets] would spur consumption growth” while
infrastructure improvements “would relieve supply bottlenecks and boost
potential output,” said Singh.
Financial systems in Asia have remained resilient during the crisis,
but Singh said financial sector reforms could also help the rebalancing
effort by supporting both consumption and investment. He pointed out
that improving access to credit could help reduce households’
precautionary savings and spur investment by small and medium-sized
enterprises, while developing new instruments and segments of the
financial sector could also help fund infrastructure and capacity in new
industries.
Singh also highlighted the benefits of allowing flexible exchange
rate policies, which he suggested would, over time, help reallocate
resources from the tradable to the non-tradable sector.
With Asia rising and becoming increasingly integrated into the global
economy, Singh said that a globalized economy would require a
multilateral approach to policies. He added that international
organizations, such as the IMF, had a crucial role to play in the
formulation of those policies.
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