Regional Economic Outlook of Asia and Pacific by IMF has some positive news for investors. It has been found that economic recovery in Asia as a whole has been fast 8.3 percent in 2010. This was mainly fueled by both exports and domestic driven demand. Looking ahead, growth is expected to continue at a moderate as well as sustainable pace in 2011 and 2012, primarily led by China and India. The output gap is narrowing in much of emerging Asia.
The report says that investment is being driven by the organic demand of the Asian countries. This is mainly to overcome the capacity constraints and to build strong infrastructure. The consumption is driven by rising employment, wages, and productivity. The risks are evenly balanced. The prospects for sustained global growth have strengthened as private domestic demand is advanced recovering which previously was alarmingly low.
Unfortunately, new risks have emerged due to the earthquake and tsunami in Japan. This might have long term effect due to disruptions in production which has resulted in spill over effect to other Asian economies paralyzing the regional supply chain. Further, the growing tensions in the Middle East and North Africa have spiked crude prices and have affected exports of Asian countries.
IMF has also referred to mild overheating (a phenomena when the production capacity of an economy fails to keep pace with aggregate demand) of Asian Economies due to acceleration of core inflation and the credit growth. As a precautionary measure, IMF calls for a strong monetary economic policies as well as macro-prudential measures to ease the over heating.
This is a Guest Post by Mr. Mitesh Agarwal, MBA (Finance) from IBS – Hyderabad