Washington: With the global economic crisis hitting Asia hard, the International Monetary Fund (IMF) expects India's growth to slow markedly in 2009 before starting to rebound toward year end.
"The spillovers from the global crisis have impacted Asia with unexpected speed and force," according to the IMF Regional Economic Outlook (REO) for Asia and Pacific which was released in Singapore on Wednesday.
Noting that "the downswing (in Asia)has been even larger than in other regions, and sharper than at the epicenter of the global crisis," it said it may take some time before the region's economies recover.
In fact, GDP in Emerging Asia excluding China and India fell at an astonishing 15 per cent annual rate (seasonally adjusted) in the fourth quarter of 2008, and a further decline most likely took place in the first quarter of this year as well, IMF said.
Although its still relatively low dependence on exports will contain the transmission of the global demand shock, India will be particularly affected by the financial shock, because the strong investment growth in recent years owed much to favourable credit conditions, it said.
"With external financing having tightened and the domestic credit cycle having turned, investment growth is expected to be severely curtailed, and so is GDP growth," IMF said.
Asia's current account surplus is expected to decline only slightly in the next two years. For many economies in the region, trade surpluses are actually expected to increase, as the combined effects of weak imports and lower oil prices more than offset the collapse in exports.
On the other hand, commodity exporters will see their current account balances worsen, while China and India's balances are expected to remain relatively unchanged, IMF said.
The report cautions that forceful countercyclical monetary and fiscal policies will consequently need to be sustained through 2010.
It also warns that Asia will eventually need to rebalance its growth from exports to domestic demand, since consumption in advanced countries may remain weak for years to come.
In these difficult circumstances, the report recommends for Asian policymakers steps for sustaining policy stimulus and rebalancing growth toward domestic demand by reforming tax and financial systems, and building strong social protection systems that will reduce the need for precautionary savings to meet health, education, and retirement expenses.
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