Asia urgently needs structural reforms: Morgan Stanley

Monday, 20 June 2011 00:00 -     - {{hitsCtrl.values.hits}}

MUMBAI: Asian governments have to urgently initiate crucial structural reforms to lift investment and create productive job opportunities which can help raise savings and aid a more sustainable growth, says a Morgan Stanley report.

The report also warns of a slower growth for the region in the near term due to the rising commodity prices and the resultant inflationary expectations. The report projects oil at $ 120-130 for the near term.

In a report titled Asia Pacific Economics: Need to get back the productive dynamic’, Morgan Stanley says, it is less benign about near-term growth prospects saying many headwinds are up in the horizon and the region as a whole will have to settle for a lower growth trajectory.

On the urgently needed reforms, it says, “So far Asian policymakers, particularly those in India and China , have relied largely on pushing growth by using loose fiscal and monetary policies.

At the onslaught of the crisis, this was justified. But we believe they relied on this rather less productive growth dynamic for too long, pushing inflation up.

“We now believe there is a need for policymakers to refocus on the difficult structural reforms, bringing back the productivity dynamics and more sustainable growth.

For some countries, the reconciliation process needs to happen to ensure that policymakers do not push for pre-credit crisis growth rates with mere support of fiscal and monetary policy,” the report said.

Though Asia is moving in the right direction, the report says the pace of reform is still slower than desirable. Hence, in the near-term, the productivity dynamic is likely to remain weak, it added.

Calling for a long-term structural reforms to provide and support sustainable growth path for the region, the report says global credit crisis and its attendant implications for the outlook for external demand led Asian policymakers to push for stronger growth in domestic demand.