Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Spotlights exports. Such a close trading relationship is the reason why the IMF forecasts a slight decline of the economic growth rate of the NIEs in 2007, since the growth and, consequently, the import demands of these advanced economies are expected to decelerate. RECENT ECONOMIC GROWTH AND CHALLENGES FOR CHINA, INDIA AND OTHER EMERGING ASIAN COUNTRIES However, there are some additional near-term China and India have recently been the growth risks to the economic outlook for the emerging engines of the Asian economies. In the last three Asian countries. First of all, there is a general fear years, from 2004 to 2006, the real GDP growth rate that, in the absence of a properly functioning maramounted to 10 percent and 8 percent in China ket mechanism, the investment-led growth will and India, respectively. Similarly high economic lead China into one boom-bust cycle after anothgrowth is anticipated in China also in 2007, while er, with each boom less sustainable than the previthe IMF projects a slight decline of the growth rate ous one. The current exceptionally rapid investof India from 8.3 percent in 2006 to 7.3 percent in ment growth could result in overinvestment, real 2007 (Figure 1).1 Economic growth in China has estate speculation and falling profits for the cormostly been triggered by the rapid increase in porate and financial sectors in China. An expaninvestment and net exports. On the other hand, in sion of private investment is required, however, to India inflation has picked up due to rising oil prices and strong domestic demand, which forced the Figure 1 Reserve Bank of India to raise REAL GDP GROWTH IN ASIAN COUNTRIES interest rates (Figure 2). The Annual percentage change % effect of higher oil prices and 12 tighter monetary controls as a 10 policy response were also the major causes of the slow eco8 nomic growth in the ASEAN-4 6 countries (Indonesia, Thailand, Philippines and Malaysia) in 4 2005 and 2006. A slight growth 2 improvement is expected in these countries in 2007. 0 2004 Economic expansion in the newly industrialised economies (NIEs) during the last two years was particularly led by the increase in exports of electronic goods. The NIEs have also benefited from the rapid growth of the Chinese economy and the favourable economic performance of some advanced economies including the Unites States and Japan. These two developed countries have traditionally been the major destinations of these countries’ 2005 China India 2006 ASEAN-4 NIEs 2007 Japan Source: IMF. Figure 2 DEVELOPMENT OF CONSUMER PRICES IN ASIAN COUNTRIES Annual percentage change % 10 8 6 4 2 0 -2 2004 2005 1 International Monetary Fund (IMF), World Economic Outlook, September 2006, Washington DC, Ch. 2 China India 2006 ASEAN-4 NIEs 2007 Japan Source: IMF. 55 CESifo Forum 1/2007 Spotlights Figure 3 DEVELOPMENT OF ACCOUNT BALANCE IN ASIAN COUNTRIES Percent of GDP % 8 6 tion also appears to be necessary at both the central and the state government levels of India. Taxbase broadening combined with subsidy cuts would be an appropriate policy option. 4 NCW 2 0 -2 -4 2004 2005 China India 2006 ASEAN-4 NIEs 2007 Japan Source: IMF. revive economic growth in the ASEAN-4 and many other emerging Asian countries. Secondly, although many emerging Asian countries have had current account surpluses (Figure 3) and have accumulated substantial foreign currency reserves, they could also be vulnerable to a sudden deterioration in international financial market conditions. Furthermore, due to strong domestic demand growth accompanied by high oil prices, some Asian countries could experience a further deterioration in their current accounts (for example, India and Thailand). For China, however, the IMF recommends a substantial revaluation of the renminbi to dampen the growth of the current account surplus and to give the central bank control of domestic monetary conditions. According to the IMF’s assessment, the central bank’s present policy focus on reducing the renminbi’s fluctuation against the dollar has made effective liquidity control difficult, and the small interest rate increases have not been sufficient to restrain the strong credit growth, which, in turn, has contributed to the investment boom in this country. The favourable economic outlook provides opportunities for fiscal reforms in a number of Asian emerging countries. In particular India, Pakistan and the Philippines require urgent budget consolidation and the reduction of public debt. Since governments in the Philippines and Indonesia have a large share of foreign debt, a continuous fiscal improvement would also lead to reduced vulnerability of these countries’ economies to external shocks. In spite of the prevailing strong spending pressures, a gradual consolida- CESifo Forum 1/2007 56