Asia could enjoy a rapid economic recovery next year once the rest of the world claws out of recession, IMF managing director Dominique Strauss-Kahn said yesterday.
“Once the world economy regains its footing a rapid recovery is possible,” he said, predicting Asian economic growth of more than 5 percent next year, almost twice the pace expected this year.
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 head of the IMF said.
Asia was likely to post economic growth of 2.7 percent this year, with the region’s developing countries seeing 5.5 percent expansion, Strauss-Kahn said, speaking to an online briefing from Washington.
“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 said.
“Some Asian economies are really dynamic. They have a lot of resources. They have very strong fundamentals,” Strauss-Kahn said.
Interest rate cuts as well as 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 is not impossible, Strauss-Kahn said, reiterating the IMF’s own forecast for 6.7 percent Chinese growth this year.
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,” he said.
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 said.
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.”
Proponents 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.