By Enda Curran and Ye Xie
ASIA will remain the world economy’s powerhouse for the next decade even as other regions pick up speed, according to Changyong Rhee, the Asia-Pacific director at the International Monetary Fund.
A deepening recovery in the US and Europe has helped fuel the world economy’s best performance in years, with 75 percent of the globe enjoying an upswing. The Asia-Pacific region is leading the way and is set to account for 63.3 percent of global growth in 2017, Rhee said in an interview in Washington. China is forecast to contribute 34.1 percent and India 13.8 percent on a purchasing power parity basis.
The Washington-based fund is forecasting the Asia-Pacific region will expand by 5.6 percent in 2017 as exports accelerate and domestic demand holds up. It sees growth of 3.6 percent for the world economy as a whole. Still, governments in Asia will need to push through reforms to ensure they hit their growth potential, Rhee said. Aging populations, lagging productivity and growing inequality are among the most pressing challenges.
Here are excerpts of the conversation with Rhee.
Q: Can Asia continue to be the world economy’s biggest source of growth even as other regions accelerate?
A: The trend will continue for at least a decade. When you think of rising middle classes in India, China and that Asean is coming up, the level of growth is really different compared to other regions.
Q: Other region’s are also seeing faster growth, what will that mean for Asia’s share of the global growth pie?
A: Asia will remain the engine of growth. Even if on relative terms it goes down, this is good news because the recovery in advanced economies will mutually help each other. So this is good for the global economy and good for Asia too.
Q: How broad based is that positive outlook? Is it all about China?
A: India is emerging as a new engine of growth, many Asean economies remain quite resilient, as do frontier economies like Vietnam and Cambodia. Per capita income is much lower in Asia, so there is room to grow.
Q: Even with the optimistic outlook, what are some of the risks in Asia that you look at?
A: Two years ago, everyone was coming to my office asking “when will China collapse?” Now, the situation has changed and not many people think that. But still, it’s the biggest risk. China maintains its high growth rate on the back of high credit expansion. If history is a good textbook, after this rapid credit expansion, there are several countries that experience a very abrupt adjustment. Given the size of China, it would have a large impact on the global economy. But China’s authorities understand this risk and they have started to rein in their credit growth. They fully understand this risk. We believe they have the buffers to manage it for a while.