This, according to IMF, would depend on repair and reform of the financial sectors to promote healthy credit growth, private demand and external rebalancing with an increase in net exports in deficit countries. Likewise, key emerging economies would need to further develop domestic sources of growth with the support of greater exchange rate flexibility.

China and India are leading the world recovery and robust domestic demand has spread from these countries to other Asian economies. Industrial production and private and domestic demand have been driving growth in these two leading economies which are expected to grow at 10.5 and 9.7 per cent respectively in 2010 before moderating to 9.6 and 8.4 per cent in 2011.

China's strong and sustained growth over the past several years has served as a linchpin for global trade, benefiting exporters of commodities in countries like Australia, Indonesia and, New Zealand and of capital goods, (especially from Germany and Japan). The moderation in 2011 is attributed to limits on credit growth, measures to cool off property market and the unwinding of the November 2008 stimulus. On average, private domestic demand in China is likely to contribute two-thirds of growth this year and the next.

Lauding India's “vigorous” macro-economic performance and the high levels of manufacturing index and business and consumer confidence, IMF said robust corporate profits and favourable external financing would encourage investment. Growth recently was driven largely by investment while contribution from net exports will turn negative in 2011 as the strength in investment further boosts imports.

IMF says the rising inflation in India signaled the need for further monetary tightening by RBI which has so far raised the key policy rate (repo) by 125 basis points. India stands apart for high inflation among emerging economies with CPI (the broad measure IMF employs in overall inflation) at 13.2 per cent in 2010, on top of the 10.9 per cent in 2009. For 2011, inflation is assumed to moderate to 6.7 per cent which again would be the highest among Asian economies barring Vietnam.

IMF has projected a rise in oil prices, and a possible acceleration in food prices, especially of wheat following the drought in Russia and Ukraine. For 2010, average oil prices would be over 76 dollars a barrel, (estimates based on futures market) and 78.75 dollars a barrel in 2011. Higher oil prices than in 2009 would have their adverse impact on leading importers like India and China (where inflation remains close to the official target of 3 per cent). For policy-makers in India, inflation worries would not easily lift.

With external demand for developing countries from the traditional developed markets weakening, and exports not recovering to pre-crisis levels at present, India's current account deficit is projected at 3.1 per cent of GDP for these two years 2010 and 2011.

Global output estimates are retained at 4.8 and 4.2 per cent in 2010 and 2011 (in PPP terms) and 3.7 and 3.3 per cent on market-based exchange rates, most worrisome for all nations, even more harmful for advanced nations, is the unprecedented levels of global unemployment. Countries like USA do not expect to make a dent on unemployment currently at 9.6 per cent in the near term, even if the pace of recovery unexpectedly improves in 2011 beginning the last quarter of 2010.

Social outlook is worsening in many countries of the world, ILO-IMF noted in a joint report. Currently, more than 210 million people across the globe are unemployed, an increase of more than 30 million since December 2007 when recession set in first in USA and spread to Europe and other advanced countries.

Growth estimates for advanced economies are 2.7 and 2.2 per cent for the two years while emerging economies and other developing countries are expected to register 7.1 and 6.4 per cent in 2010 and 2011 respectively. For USA, growth would be still below potential at 2.6 and 2.3 per cent in 2010 and 2011 respectively, as estimated by IMF while eurozone would grow by 1.7 and 1.5 per cent and Japan 2.8 and 1.5 per cent.

Developing Asia would see higher levels of performance at 9.4 and 8.4 per cent respectively. World trade volume which suffered contraction of 11 per cent is expected to recover by 11 per cent on a low base in 2010 and maintain a 7 per cent growth in 2011. But trade recovery contributed to growth revival in the first half of 2010.

Against the background of slowdown in mature markets, Asia continues to be the most attractive region for capital flows.Net private capital flows would rise strongly to 825 billion dollars and slightly moderate in 2011, according to the International Institute of Finance. China and India are expected to receive 90 and 40 billion dollars of direct investment in 2010 while portfolio investment (net) could be 36 and 30 billion dollars respectively.

The recent resurgence in capital inflows to emerging Asia, after a temporary stop during the global crisis, has raised potential policy challenges, IMF says. While capital flows have helped support domestic demand, their size relative to the comparatively smaller financial markets, has intensified existing concerns, including the risk of inflation, asset price bubbles, financial sector instability, and excessive appreciation

Looking beyond the crisis, Asia's medium-term prospects depend on how successfully it is able to rebalance the drivers of growth—with greater reliance on domestic sources compared with external demand, IMF has urged China to allow more flexibility to its currency so that other surplus countries in the Asian region would follow suit, and thus facilitate the needed shift towards domestic sources of growth.(IPA Service)