India,China lead Asian recovery: IMF

“The handoff from public sector-driven to private-sector-driven growth is well under way in most Asian countries,” the fund said,noting that a tapering off of stimulus measures had been met by private demand.

China and India’s industrial production and retail sales remained strong and “robust activity in these countries in turn is helping power growth in the rest of Asia,” said the IMF.

China’s strong and sustained expansion has been a “linchpin for global trade” that helped its commodity-exporting neighbours,including Australia,Indonesia and New Zealand,as well as capital goods exporters in Japan,Germany and Korea,it said.

The IMF forecast that China would grow 10.5 per cent this year and 9.6 per cent in 2011,driven by domestic demand — projections that were unchanged from the July outlook.

“On average over 2010-11,private domestic demand is poised to contribute two-thirds of near-term growth,and government activity about one-third,whereas the contribution from net exports will be close to zero,” the fund said.

India’s GDP would expand by 9.7 per cent in 2010 and 8.4 per cent next year,the fund said. The forecast issued in July saw 9.4 per cent growth this year and 8.4 per cent in 2011.

“In India,low reliance on exports,accommodative policies,and strong capital inflows have supported domestic activity and growth,” the IMF said.

“Robust corporate profits and favourable external financing will encourage investment,” it added.

Asia’s newly industrialized economies — Hong Kong,Singapore,South Korea and Taiwan — saw a rapid recovery driven by a rebounding inventory cycle,strong domestic activity and regional demand for their exports,it said.

The economies of the 10-member Association of Southeast Asian Nations,particularly the exporters of commodities and electronics,benefited from strong regional growth.

“Overall,near-term growth for the region is projected to be underpinned both by exports and domestic demand,” the IMF said of ASEAN.

The Asian region’s recovery faced downside risk from outside,the IMF warned.

“A slower recovery in the United States and the euro area,a greater-than-anticipated slowdown in China,or negative spillovers from unanticipated financial shocks abroad could interrupt the pace of recovery,” said the outlook.

Currency appreciation — a hot-button topic in China’s relations with the United States and Europe — will be critical to Asia’s medium-term growth prospects,which depend on a shift to domestic demand from external markets.

“To the extent that a stronger Chinese currency eases this process,other surplus countries in the region could follow suit,which would facilitate the needed shift toward domestic sources of growth,” the IMF said.