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Economy Watch
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February 18 Updates
| IMF: Asia Is Capable of Leading Global Economic Transformation
“Now is the time for Asia to contribute even more to the shaping of the post-crisis global economic landscape. Potentially, this is a historic moment for Asia. A moment of transformation,” said Dominique Strauss-Kahn, IMF Managing Director at the Asian Financial Forum in Hong Kong.
Asia is leading the world in recovery from the global economic crisis and, in the coming years, the region's continued dynamism can give it an even greater role, he added. To sustain the strong growth performance, Asia would need to adapt to the new challenges presented by the post-crisis economy although many Asian countries are already “moving rapidly to identify the key elements of a new model that can deliver sustained growth.” This included the realisation that there are limits to the pace of export growth. And domestic and regional demand would need to play an increasingly important role in underpinning Asia's growth.
“This does not mean that Asia should become inward-looking. Rather, it means reinvigorating domestic demand and boosting intra-regional trade. Such a recalibration of Asia’s growth model is in the region's self-interest, since it would reduce its dependence on demand from outside Asia. It is also in the global interest,” Mr Strauss-Kahn highlighted.
“2010 is going to be a crucial year,” said Mr Strauss-Kahn, especially in the areas of building stronger policies and more sustainable global economy.
He highlighted three issues:
• Maintaining the momentum of reform in the financial sector, installing stronger and smarter regulation and supervision.
• Identifying new sources of growth that can help rekindle private demand, in particularly the need for labor and product market reforms that can boost productivity.
• Strengthening international policy collaboration is also essential. The G20's “mutual assessment framework” is vital process aimed at ensuring that the world's largest economies will be accountable to each other to ensure strong, stable and sustainable growth. “The IMF is providing analytical support for this innovative approach to multilateral cooperation,” he added. “And I believe that this new framework can be one of the keys to the transformation of the global economy in 2010 and beyond.”
Mr Strauss-Kahn added that Asia's role also is increasing at the IMF—with its quota and voice being brought more into line with its raising influence in the global economy.
“As Asia’s economic power grows, so too does Asia's interest in promoting the successful performance of the global economy. And as the region enhances its role in the global policy debate, I see great potential for the world to benefit from Asia's ideas and experiences. We all have a lot to learn from Asia,” said Mr. Strauss-Kahn.
China May Increase Interest Rates
According to Royal Bank of Canada’s emerging-market strategist Brian Jackson, China may increase interest rates before the end of March as accelerating economic growth prompts the central bank to tighten monetary policy,
Jackson commented that the current policies “were put in place at the height of the global downturn, when everyone was very worried about the Chinese economy. Now we’re in a different place and I think it’s appropriate that policy is adjusted accordingly.”
It is reported that the Shanghai Composite Index has dropped 9.1 percent this year over concerns that the government will increase borrowing costs to combat inflation and avoid an asset bubble. Further reports also revealed that consumer prices rose 2.1 percent last month, the highest since November 2008, according to the median forecast in a Bloomberg News survey of economists.
In January, China’s central bank ordered lenders to set aside bigger reserves for the first time since June 2008. China’s economy expanded 10.7 percent in the fourth quarter, the fastest rate in two years. Imports peak at a record 85.5 percent from a year before, a leap that was influenced by a shift in the Lunar New Year holiday to February 2010 from January 2009. Exports rose 21 percent in a second monthly advance after 13 declines that may emphasise overseas demands for China to allow a stronger currency.
Jackson forecasted that the central bank may increase rates to allow the yuan to appreciate against the dollar before the end of March.
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