Asia’s leadership of the global recovery is continuing unabated. The IMF now expects GDP in Asia to grow by about 7¾ percent in 2010 (up about ½ a percentage point from what was envisaged in April), before easing to about 6¾ percent in 2011. And, even though the downside risks to growth have intensified, the region is well equipped to handle them.
History has shown that persistent and large capital inflows can be a double edged sword. While they bring with them numerous benefits, they do pose risks and policy dilemmas. Continued large capital flows pose, for example, the risk of overheating and runups in asset prices that may subsequently render the region vulnerable to outflows and asset price busts.
The year 2010 has opened amid generalized—–but tempered—optimism about the global economic and financial outlook. The unprecedented scale and scope of the anti-crisis measures taken during the past year—and the unprecedented degree of multilateral policy coordination involved in their design and implementation—appear to have succeeded in averting a downturn of historic proportions. But looking forward, the new decade is ushering in a series of at least five key challenges.