07/08/2010, 00.00
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IMF predicts faster recovery, but dangers lurk around the corner

Forecasts for this year are revised upward thanks to Asia, which is even better placed to resist the effects of Europe’s sagging economies. Some experts warn however, that neatly worked-out estimates can mask a situation characterised by structural problems in a number of countries.
Beijing (AsiaNews/Agencies) – The world economy is set to expand by 4.6 per cent this year, higher than the 4.2 per cent projected in April, the International Monetary Fund (IMF) announced today. A higher GDP growth rate for Asia (7.5 per cent from 7.0 per cent in April) is the main explanation for this rosier scenario. Economies in the euro zone remain however on a sick list for possible setbacks. Experts are puzzled though by the higher-than-expected growth rates in some of the faster economies because they contradict previous forecasts.

China’s economy is expected to grow by 10.5 per cent following a strong rebound in exports and resilient domestic demand, the IMF said, up from 10.0 per cent in the April forecast.

India's growth was also revised higher to 9.4 per cent from 8.8 per cent as robust corporate profits and favourable financing conditions fuel investment.

Even next year, when stimulus packages are expected to end in several countries, Asia's GDP growth is expected to settle to “a more moderate but also more sustainable rate” of 6.8 per cent, with China’s growth slowing to about 9.6 per cent and India's settling at 8.4 per cent, the IMF said in its report.

In Japan, growth was now expected to reach 2.4 per cent this year, due mainly to stronger-than-expected exports.

The five key Southeast Asian economies of Indonesia, Malaysia, the Philippines, Thailand and Vietnam were expected to grow by an average 6.4 per cent this year and 5.5 per cent next year.

The IMF warned however that if the crisis in Europe continues or gets worse, the export-oriented economies of Asia are bound to suffer.

More significantly, some analysts are not convinced by IMF projections given recent announcements and the daily experience in the economies with higher-than-usual growth.

In China, for example, where the government has taken steps to dampen rising housing prices, the real estate market is already cooling and this already slowing down overall economic growth.

Local experts told AsiaNews that the entire economy has felt the repercussions of a flatter real estate market right away as the number of housing starts levelled off, and demand for construction material like iron and steel declined.

As the yuan appreciates, albeit slowly, Chinese goods will get more expensive, with negative consequences for Chinese manufacturers. All this will come inevitably at a price in terms of domestic wealth and personal consumption, all the more so if we consider that China’s safety net is quite thin.

With manufacturing slowing down, unemployment will rise, reducing personal purchasing power as well as public spending, in what might become a vicious downward cycle.

This explains why China's central government said it was going to invest more than US$ 100 billion in 23 new infrastructure projects (railways, roads, airports, coal mines, nuclear power stations and power grids) in the underdeveloped western regions of the country (Xinjiang, Inner Mongolia, Tibet, Sichuan and Yunnan), aiming to boost domestic demand.

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