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April 10, 2011

IMF: Sustained Strong Growth in China to Boost Asia

by William Ide

The International Monetary Fund, or IMF, said Monday that a broad-based economic recovery continues in Asia and that growth in the region, despite slightly lower recent performance, still outpaces the rest of the world.  IMF economists say China - the world's second largest economy after the United States - should see strong economic growth this year and that it will help boost other economies in the region.

Economists at the International Monetary Fund say growth in China is projected to be robust at 9.6 percent this year.

They note that demand in the country is shifting from the public to private sector as consumption is getting a boost from credit growth and government policies to raise household income.

IMF economist Abdul Abiad spoke Monday about the outlook for China and its impact on the rest of Asia as the IMF released of its annual World Economic Outlook report. "China does help the region and strong growth in China will continue to help the region as well," he said.

Last year, China's economy grew at a rate of 10.25 percent.  And experts predict that Chinese economic growth will remain at around 9.5 percent for the next two years.

In its report, the International Monetary Fund says that this year's export growth for Asia will be slightly lower than last year's.  And it warns that the region's reliance on exports for growth presents risks.  The report notes that although inter-Asian trade grew last year, two-thirds of the final demand for products made in Asia came from outside of the region.

The possibility of renewed turbulence in the Euro region, the report says, could affect trade with Asia.

Although the IMF says foreign investment is recovering in Asia to pre-financial crisis levels, it notes that inflation is expected to broaden, mainly in emerging and developing economies.

The IMF's Abdul Abiad says there is serious uncertainty over the economic outlook for Japan, following last month's devastating earthquake and tsunami. "There is uncertainty about the extent of the damage to capital.  The official estimate is that the damage is about three to five percent of the GDP or about the double that of the Kobe earthquake.  But there is still uncertainty around that estimate.  A second big uncertainty is the length of time it will take until both supply chain disruptions and power disruptions are resolved," he said.

Japan is the world's third largest economy and there have been concerns about the affect the earthquake could have on the regional and global economies.

Olivier Blanchard, Chief Economist at the IMF says that although advanced economies are struggling to boost growth and bring down high unemployment, emerging and developing economies such as China are struggling with inflation. "For the recovery to be sustained, advanced countries must achieve fiscal consolidation.  To do so, and to maintain growth, they need to rely on increased external demand.  Symmetrically, emerging market economies must rely less on external demand and more on domestic demand," he said.

Blanchard adds that one way for emerging countries to help rebalance the world economy is to allow undervalued currencies to appreciate faster. "Appreciation of emerging market countries' currencies relative to advanced countries' currencies is a central key to this global adjustment.  It is not the only key, but it is a central key," he said.

China's currency, the yuan, has long been a target of complaints by Western nations that say it is artificially low and gives Chinese companies an unfair trade advantage.  

In its report, the IMF says that increasing the value of the yuan would ease inflationary pressures in China and help correct global trade and fiscal imbalances.

China is expected to see five percent inflation this year, according to the IMF report, which notes that price pressures there that started in a narrow range of food products have now broadened to other sectors, including housing.

China's latest trade data shows its first quarterly trade deficit in seven years.  Some economists say Beijing might try to use the data to quiet calls to revalue the yuan.

The IMF says inflationary trends like those in China are becoming evident in other developing economies in Asia, and projects the growth of inflation in the region this year at six percent.