IMF Says Asia May See Rapid Economic Recovery

TOKYO ~ Asia’s economies could recover rapidly from their slump once the rest of the world claws out of recession, the head of the International Monetary Fund said this week.

“Once the world economy regains its footing, a rapid recovery is possible,” Dominique Strauss-Kahn said, predicting Asian economic growth of more than 5 percent in 2010, almost twice the pace expected in 2009.

Asian countries cannot begin to recover until the rest of the global economy escapes from the current “major downturn” because they rely heavily on exports, the IMF chief said, speaking to an online briefing from Washington.

Asia was likely to post economic growth of 2.7 percent this year, with the region’s developing countries seen expanding 5.5 percent, Strauss-Kahn said.

“But it’s very uncertain and a worse outcome cannot be ruled out,” he said.

Once the US and European economies start to rebound, however, some Asian economies “may recover very fast,” he added.

“Some Asian economies are really dynamic. They have a lot of resources. They have very strong fundamentals.”

Interest rate cuts and government spending would help spur the recovery in Asia, whose banks are not suffering problems on the same scale as their US and European peers, Strauss-Kahn said.

He said certain countries in the region, including China, have more room for fiscal measures to stimulate their economies.

China would find it “very challenging” to meet its target of 8 percent economic growth this year although it was not impossible, Strauss-Kahn said, reiterating the IMF’s own forecast for 6.7 percent Chinese growth in 2009.

China’s economy faces a lot of “painful changes” as a result of the global slowdown, he warned.

“But those changes are obviously for the good and in the interest of the people of China. It has to be done.”

In the longer term, China and the rest of Asia need to reduce their dependence on exports and stimulate domestic demand, but this is a difficult task that will take some time to achieve, he added.

South Korea’s economy will shrink four percent this year, the IMF said, sharply cutting its earlier estimate due to big falls in exports and weak domestic demand.

However, Asia’s fourth-largest economy will likely accelerate its recovery from the second half and is expected to grow 4.2 percent in 2010, marking the largest turnaround among world economies, the IMF said in a report.

South Korea, like China and Japan, have been hit by falling exports as consumers in the United States and Europe tighten their belts to cope with the recession.

The IMF chief also warned countries not to turn to protectionism during the economic slump, saying: “Beggar thy neighbor policies will never give a good result.”

Supporters of free trade fear that the global economic crisis and the subsequent wave of job cuts could prompt governments to pursue policies that favor national companies and reduce global trade flows.

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