Continuing my travels through Asia for the launch of our October 2010 Regional Economic Outlook: Asia and Pacific, I am writing to you today from Singapore. In my last post, I focused on the near-term outlook and challenges for Asia. Today, I turn to the key medium-term challenge—the need to rebalance economies in the region away from heavy reliance on exports by strengthening domestic sources of growth. This is against a backdrop of the need to rebalance global growth that was emphasized over the weekend by the ministers of the Group of Twenty industrialized and emerging market countries.
Although the war is over, without political stability and good governance Sri Lankan economy is unlikely to settle to a sustained growth trajectory. Without economic growth and inclusive development the phoenix of war may come to life again.
One by-product of the massive capital reallocation to emerging market economies, highlighted by RGE for some time, has been a sharp acceleration in foreign exchange reserves accumulation. Central banks, particularly in emerging market economies, have been adding reserves at the pace of an average US$250 billion per quarter since Q2 2009 as they sought to reduce the appreciation and volatility of their currencies. IMF data reported that the global reserve stock exceeded US$7.5 trillion in Q3 2009, well higher than aggregate pre-recession levels. October and November data suggest that Q4 looks to be more of the same story. At this pace (US$1 trillion annualized), reserve accumulation in excess of the deficits of the U.S. and other “overspenders”.
In its latest Outlook, the Asia Development Bank (ADB) states that Asian economies will recover faster than expected – 3.9 percent this year and 6.4 percent in 2010 (estimates just six months ago were at 3.4 percent and 6.0 percent, respectively). This growth, led by China, of course, was a result of “firm action by […]