Summary |
The short-term baseline outlook for Asia remains positive, with growth expected to settle at more sustainable but still high levels. Growth is likely to remain particularly strong in the large, domestic-demand-driven economies of china, India, and Indonesia. The continuing, albeit sluggish, recovery in advanced economies during 2010-11 that is envisaged in the October 2010 world economic outlook should support firm growth in Asia’s exports, although below the very high rates of 2009 and early 2010. A gradual pace of withdrawal of policy stimulus, sustained improvements in labor market conditions, and still accommodative financial conditions are expected to sustain private domestic demand. Ample global liquidity on the one hand, and the relatively robust growth and low public debt in Asia on the other hand, should continue to fuel capital flows to the region. Reflecting the slowing of export growth and strong domestic demand, Asia’s current account surplus is projected to decrease to about 3 percent of regional GDP In 2010 and 2011, from about 5 percent in 2007, making a modest contribution on the narrowing of global imbalances.
The main risk to the outlook is the external environment. As discussed in the world economic outlook, while global financial conditions have improved since June 2010, underlying sovereign and banking vulnerabilities in advanced economies remain a significant challenge, and concerns linger over the strength of the global recovery. Despite Asia’s strong economic and policy fundamentals, important trade and financial linkages with advanced economies suggest that a further deterioration in global financial conditions and a slowing of the global recovery would have important repercussions for the region.
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