SEOUL: Asia is leading the way out of the global economic slump but must adapt to a "new world" of softer demand in major Western export markets, the International Monetary Fund said on Thursday.

In its latest economic outlook for Asia and the Pacific, the IMF forecast an "impressive recovery" with regional growth speeding up to 5.75 per cent in 2010 from a projected 2.75 per cent this year.

The IMF said that while output in most of Asia was initially hit even harder than in countries at the centre of the crisis, "now Asia is leading as the world pulls out of recession".

"Just as the US downturn triggered an outsized fall in Asia's GDP because international trade and finance froze, now their normalisation is generating an outsized Asian upturn," its report said.

"For this reason, the rebound in economic activity has been fastest in the export-dependent Asian economies that were hit most severely at the end of 2008."

The IMF also credited the region's "rapid, forceful, and comprehensive policy response". It said this was made possible by sounder government finances, more credible monetary policies and stronger corporate and bank balance sheets than in the past.

"These conditions gave Asia the space to cut interest rates sharply and adopt large fiscal stimulus packages," it said. "As a result, overall domestic demand has held up remarkably well, despite weak private demand."

The IMF reaffirmed its forecast for Chinese GDP growth of 8.5 per cent this year and 9 per cent next. It said Japan's struggling economy would contract by 5.5 per cent this year, before rebounding modestly in 2010 by 1.75 per cent.

IMF Asia-Pacific director Anoop Singh also stressed the danger of a premature withdrawal of stimulus measures.

"The recent recovery is not permanent," he told a briefing. "Therefore we need to maintain fiscal and monetary stimulus until we are fairly sure that recovery is firmly in place."

- AFP/sc