Saturday, April 24, 2010 - 12:15
IMF Offl:Recognition in China Stronger FX Part of Needed Pols
By Heather Scott
WASHINGTON (MNI) - China's policymakers recognize the need to move to a "new engine" of growth, for the nation's own good as well as the good of the global economy, and currency appreciation is part of the policy mix needed to achieve that, a senior International Monetary Fund official said Saturday.
The Asia Pacific region will continue to lead the world recovery with strong growth, and China and India will continue to lead the region and the world, Anoop Singh, head of the IMF Asia and Pacific Department told reporters during the fund's Spring ministerial meeting.
"There is great recognition in China as well as in other parts of Asia of a new engine of growth over the medium term. And this is based on boosting domestic demand, especially private consumption," Singh said.
The shift "requires a range of policies, fiscal, financial and others, which would raise the labor share of income and boost private consumption," he said.
"I see the strengthening of currencies in Asia as part of this complex set of policies to raise consumption over the medium term."
However, Singh cautioned that even as Asian consumption is expected to remain robust as the recovery progresses, even in the best case scenario it will provide only partial offset to weaker demand in advanced economies, so "private domestic demand does need to be nurtured across Asia."
The official noted that the strong performance in Asia is a break from past recovery cycles, and another difference is that this time "it is clear inflows to the region have surged" because of Asia's improved economic resilience.
But he warned that this could "pose some near-term risks" although "we do believe at this point that asset price inflation in Asia has so far been generally contained."
With rising excess liquidity, Singh said, it is encouraging that policymakers are committed to addressing the inflows, which are largely driven by fundamentals.
So, "We don't see the return to boom and bust cycle that we've seen during periods of previous capital inflow into different regions" as the flows are "currently by and large being managed well," he said.
Asked about deflation in Japan, Singh said the IMF has upgraded it's forecast to about 2% growth this year and next -- a two-tenths upward revision since the January forecasts -- which should begin to resolve the problem.
"Our present sense that for a number of reasons, including the improvement we're seeing in growth, that deflation will begin to recede, and we are seeing a return to positive inflation by the second half of next year," Singh said.
Meanwhile, in South Asia, the output gap is narrowing and "therefore it is not surprising that inflation has begun to turn up," Singh said.
However, he noted that India and other nations are beginning to tighten monetary policy to address the price increases, which in many cases are being driven by food.
"There is a clear commitment in all countries to ensure that inflationary expectations do not broaden to result in higher underlying inflation," he said.
** Market News International Washington Bureau: 202-371-2121 **
IMF Offl:Recognition in China Stronger FX Part of Needed Pols
By Heather Scott
WASHINGTON (MNI) - China's policymakers recognize the need to move to a "new engine" of growth, for the nation's own good as well as the good of the global economy, and currency appreciation is part of the policy mix needed to achieve that, a senior International Monetary Fund official said Saturday.
The Asia Pacific region will continue to lead the world recovery with strong growth, and China and India will continue to lead the region and the world, Anoop Singh, head of the IMF Asia and Pacific Department told reporters during the fund's Spring ministerial meeting.
"There is great recognition in China as well as in other parts of Asia of a new engine of growth over the medium term. And this is based on boosting domestic demand, especially private consumption," Singh said.
The shift "requires a range of policies, fiscal, financial and others, which would raise the labor share of income and boost private consumption," he said.
"I see the strengthening of currencies in Asia as part of this complex set of policies to raise consumption over the medium term."
However, Singh cautioned that even as Asian consumption is expected to remain robust as the recovery progresses, even in the best case scenario it will provide only partial offset to weaker demand in advanced economies, so "private domestic demand does need to be nurtured across Asia."
The official noted that the strong performance in Asia is a break from past recovery cycles, and another difference is that this time "it is clear inflows to the region have surged" because of Asia's improved economic resilience.
But he warned that this could "pose some near-term risks" although "we do believe at this point that asset price inflation in Asia has so far been generally contained."
With rising excess liquidity, Singh said, it is encouraging that policymakers are committed to addressing the inflows, which are largely driven by fundamentals.
So, "We don't see the return to boom and bust cycle that we've seen during periods of previous capital inflow into different regions" as the flows are "currently by and large being managed well," he said.
Asked about deflation in Japan, Singh said the IMF has upgraded it's forecast to about 2% growth this year and next -- a two-tenths upward revision since the January forecasts -- which should begin to resolve the problem.
"Our present sense that for a number of reasons, including the improvement we're seeing in growth, that deflation will begin to recede, and we are seeing a return to positive inflation by the second half of next year," Singh said.
Meanwhile, in South Asia, the output gap is narrowing and "therefore it is not surprising that inflation has begun to turn up," Singh said.
However, he noted that India and other nations are beginning to tighten monetary policy to address the price increases, which in many cases are being driven by food.
"There is a clear commitment in all countries to ensure that inflationary expectations do not broaden to result in higher underlying inflation," he said.
** Market News International Washington Bureau: 202-371-2121 **