Asia to lead world growth this year: IMF

Asia to lead world growth this year: IMF

Agence France-Presse, Hong Kong

Asia is set to lead world growth this year despite risks to the regional and global economies from a possible war in the Middle East, terrorist attacks and Japan's weakness, a senior IMF official said Wednesday.

The International Monetary Fund has estimated global economic growth this year of 3.7 percent, up from the forecast for last year of 2.8 percent. However, growth in most Asian economies should be higher than the global estimate, IMF external relations director Thomas Dawson said at a Foreign Correspondent's Club lunch here.

"Asia weathered the global slowdown better than other regions, and our expectation is that this year as well, growth in most of the Asian countries will be above the global average," Dawson said.

The IMF expects Asian industrialized economies, apart from Japan, to grow between 3.5 percent and six percent this year. The growth of the larger Southeast Asian economies is expected to average four percent.

"There does seem to be a bit of a disconnect in that the numbers seem to be better than what the attitude seems to be in the region and I'm a little bit curious about that," he said.

However, Dawson conceded that recent data suggest the global recovery is tepid and "downside risks appear to predominate".

"One concern is that the geopolitical situation will at some point force oil prices to catastrophic heights."

Oil prices have already risen sharply as the United States moves closer to a possible war against Iraq and the IMF estimates that every five dollar sustained rise in oil prices would cut 0.3 percentage points off global growth after about six months.

Another terrorist attack -- similar to October's Bali bombing -- would directly impact on industries such as tourism and lead to higher security costs. It would also weigh on investment decisions across many sectors, Dawson said.

Japan's persistently weak economy continues to act as a drag on Asia and the world and its government needs to move more decisively towards resolving its problems, he said.

"On the monetary policy side, more aggressive monetary easing by the Bank of Japan is needed to address deflationary pressures.

"But the benefit will be small unless the BoJ's actions are accompanied by broad economic restructuring of the banking and corporate sectors."

In the longer term, increasing intra-regional trade in Asia will eventually lead to less reliance on the major U.S., European and Japanese economies. The rise of China in international trade is an important step towards economic integration in the region.

Contrary to popular perceptions, China's trade gains have not been at the expense of Southeast Asia's emerging economies, he said.

"Instead, China and the ASEAN-4 (Thailand, Indonesia, Malaysia and the Philippines) have together displaced the Asian industrialized countries in sectors -- such as apparel, footwear and household products -- that these more advanced economies were relinquishing.

"This is a healthy, rather than disturbing development."