IMF says Asia leading world recovery, cautions against risks

By Kim Young-gyo
HONG KONG, May 14 (Yonhap) -- China and other Asian countries are leading the
recovery of the world economy, but the region needs to remain attentive to
downside risks, the International Monetary Fund (IMF) said Friday.
"One year after the deepest recession in recent history, Asia is leading the
global recovery," said Anoop Singh, director of the Asia and Pacific Department
at the IMF, in a statement.
"Key economic indicators are now growing at or above long-term trends, not only
in China, but also in Asia's other emerging economies with a large domestic
demand base, like India and Indonesia," he said.
Singh explained that Asia's strong performance will be underpinned by the
inventory cycle as demand recovers in advanced economies. He added that private
domestic demand is expected to remain robust in the region, due to sustained
consumer confidence, high asset values and a return of capacity utilization to
more normal levels.
But the still-fragile global recovery and Asia's strong dependence on external
demand remain downside risks, the IMF cautioned.
"A more immediate risk is that market concerns about sovereign liquidity and
solvency in the euro-zone periphery may turn into a potentially contagious
sovereign debt crisis," the organization said in its the Regional Economic
Outlook report for Asia and the Pacific.
While Greece's sovereign debt situation has so far not had a major impact on
flows to the region, the increase in global risk aversion and renewed pressures
to de-leverage could pose particular risks to Asian corporations and banks that
face higher refinancing needs than in other regions, the IMF said.
The report also noted that Asia's relatively strong cyclical position may also
pose near-term risks, in particular if brighter growth prospects and widening
interest rate differentials with advanced economies lead to further capital
inflows to the region.
"This could lead to overheating in some economies and increase their
vulnerability to credit and asset price booms with the risk of subsequent abrupt
reversals," said the IMF report.
While asset-price inflation in Asia has so far been generally contained,
policymakers will need to be attentive to safeguarding the macroeconomy and
financial system against the buildup of imbalances in local asset and housing
markets, the report warned.
ygkim@yna.co.kr
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