STANBUL - Major Asian economies achieved a remarkable rebound from the global financial crisis, but it is not certain the recovery can be sustained, the International Monetary fund said on Thursday.
Export-dependent China, Japan and smaller neighbors faced slumping demand for their manufactured goods and a decline in investment after the collapse of Lehman Bothers last year. Their outlook improved during first half of 2009.
"The recent, swift turnaround of economic fortunes is remarkable," the IMF said in its World Economic Outlook. "Questions remain about whether the rebound can become a self-sustaining recovery -- ahead of a stronger growth pickup in the rest of the world."
China -- which along with Indonesia and India were the only Asian economies to escape severe recession -- achieved growth of 7.1 percent in the first half of 2009 fueled by a huge domestic stimulus plan. That helped a region-wide recovery, the IMF said.
Asia's intensifying rebound was driven by expansionary fiscal and monetary policies, a recovery in financial markets and capital inflows, as well as the build-up of depleted inventory, the IMF said.
"Despite these positive signs, a sustained turnaround is not assured," the outlook warned.
"The pickup in activity is so far being supported by many factors that could turn out to be temporary: rebounding capital markets, inventory adjustment, and expansionary fiscal and monetary policy," said the Fund.
Consumption was likely to be dragged down by weakening labor markets while investment demand would drop in the face of excess capacity in industry, it said.
"The main driver of past recoveries -- a durable rebound in external demand from outside the region -- may be lacking this time around," the IMF said.
To ensure a sustained recovery in the face of lower demand from North America and Europe, Asian economies need to shift their source of growth to more domestic demand, it said.
This would require a combination of demand- and supply-side measures, as well as steps to improve social safety nets and health care systems in order to reduce household savings, it said.
Asian countries should also move toward more flexible exchange rate regimes to rebalance growth and buffer the economic impact of external shocks, it said.
The IMF forecast China and India will lead Asia's expansion in 2010, growing at rates of 9.0 and 6.4 percent, respectively.
Japan will grow 1.7 percent in 2010, the IMF forecast.
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