DECEMBER 22, 2012

By Swastika

THE latest IMF's Report on outlook for Asia in 2013 unfolds that after a restrained economic performance in rising Asia in 2012, growth is set to gain its momentum gradually in 2013, triggered by external demand and an accommodative monetary policy. The growth of Asia in 2012 is estimated to be 0.5% points lower than that of 2011 still this region is expected to expand 2 percent points than the global average.

It is interesting to note that Asia fuelled the global economy and kept it alive during the crisis period in 2012 amid European slowdown, euro zone crisis, US slowdown specially powered by India and China. Weaker momentum in China and India also weighed on regional economies in 2012 but despite their position remained more or less robust. For Asia as a whole, GDP growth fell to its lowest rate since the 2008 global financial crisis during the first half of 2012. With inflationary pressures easing, macroeconomic policy positions remained supportive of domestic demand and in some instances were eased further in response to the slowdown.

On a large canvas financial conditions remain accommodative, and capital inflows have resumed. Going ahead, growth is projected to pick up very gradually, and Asia should remain the global growth leader, expanding over 2 percentage points faster than the world average in year 2013. However, considerable downside risks persist, particularly with respect to the euro area crisis. The priorities for policymakers in this hour are to support non inflationary growth, maintain financial stability, and remain responsive to weaker-than-expected outcomes. Refocusing structural and fiscal reform efforts toward sustained and more inclusive growth also remains a priority.

For Asia a whole, real GDP growth averaged 5.5 %( y-o-y) in the first half of 2012, well above the global average, but the lowest rate since the 2008 global financial crisis. Domestic factors also contributed to the slowdown in China and especially India, revealing conscious efforts to persuade a soft landing in China and weakening investor sentiments adding to supply constraints in India. China had become an important driver of growth engine in the area and each one percentage-point decline of investment growth in China would lower GDP growth by more than half of a percentage point over four quarters in those economies with the closest regional supply chain links to China, including Korea, Malaysia, and Taiwan Province of China. Weaker external demand was the main factor decelerating growth of china but China's efforts and supply constraints weighed heavily on growth of Asia.

In Japan, a slowdown in consumption drove the recent deceleration in growth after the policy driven pick up in early 2012.Several ASEAN economies, led by Indonesia, Malaysia, the Philippines and Thailand have bucked regional trends with growth remaining closer to the potential in part supported by public investment.To finance growing development-spending needs,in Japan where the recent Diet approval of a doubling of the consumption tax rate by 2015 is a crucial first step toward a credible longer-term fiscal strategy to achieve public debt sustainability.

One more complicating factor is rapid population ageing, which will exert a drag on growth in many high and middle income countries alike, from Japan to China, and also poses new fiscal challenges. And even where demographic trends are more favorable, such as in India and many of Asia's low-income economies, making growth more inclusive and broad based remains a major challenge.

According to the recent activities indicators which point towards economic momentum & indicate that the economies are now stabilizing in Asia. A modest growth pickup to about 6 percent in 2013 would result mostly from strengthening external demand, with accommodative monetary stances across the region also playing a role.

So far as external risks are concerned Asia cannot keep itself aloof amid euro crisis and fiscal cliff with the fear of debt ceiling hovering on the US economy.All these are going to impact in a big way specially the market sentiments in the stock market. In the event of a severe global slowdown, falling external demand would exert a powerful drag on Asia's most open economies, including through the second-round impact of lower investment and employment in export oriented sectors.

However,if European policymakers fully deliver on their commitments and a major fiscal contraction is avoided in the United States, growth in Asia might surprise on the upside, especially as monetary conditions in advanced economies are projected to remain accommodative.Higher structural deficits than before the crisis imply the need to rebuild fiscal space in many Asian economies,and welcome improvements in fiscal balances across most of the region are expected for 2013.

To sustain economic growth over the medium term and make growth more inclusive,a diverse policy agenda will be required in different parts of Asia,ranging from economic rebalancing to strengthening the sources of private sector led investment,to reforms in goods and labor markets, and meeting the opportunities and challenges from rapid demographic change.Strengthening fiscal policy frameworks can also play an important role in reprioritizing spending and mobilizing adequate revenue in support of new sources and more inclusive growth. And coordinated and collective action by Asian policymakers will also help,in particular by pursuing ongoing initiatives to maintain and deepen strong regional trade integration.

Economic momentum in Asia set to pick up gradually in 2013.Fiscal reforms will also remain a policy priority to achieve greater economic resilience and inclusive growth,including by reorienting government budgets toward investments in social safety nets and critical infrastructure.Strengthening and improving the efficiency of government revenues will also remain a priority.

Structural reforms have played a key role in strengthening Asia's economic fundamentals and allowing the region to lead the global recovery and weather the global economic turbulence of recent years and will surpass in years to come.The grounds set for 2013 are optimistic which fosters a positve outlook for Asian econmies paving a way for an extended opportunity to India along with smaller asian countries like Thailand, Phillipines,Vietnam.