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World Economic and Financial Surveys

Regional Economic Outlook: Asia and Pacific

Navigating an Uncertain Global Environment While Building Inclusive Growth

October 2011
©2011 International Monetary Fund
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In line with the weaker global outlook, growth in Asia is expected to be slightly lower in 2011-12 than forecast in April 2011, mainly as a result of weakening external demand, but the expansion should remain healthy, supported by domestic demand, which has been generally resilient. Overheating pressures remain elevated in a number of economies, with credit growth still robust and inflation momentum generally high, though inflation is expected to recede modestly after peaking in 2011. The sell-off in Asian financial markets in August and September 2011 underscores that an escalation of euro area financial turbulence and a renewed slowdown in the United States could have severe macroeconomic and financial spillovers to Asia. Against this backdrop, Asian low-income and Pacific Island economies face particular challenges in the near and medium term. In low-income countries, the fight against inflation is complicated by strong second-round effects, the need to phase out subsidies, and less well-anchored inflation expectations. Pacific Island economies need to undertake further structural reforms to lift potential growth.

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Contents
Executive Summary

Chapter I: Navigating an Uncertain Global Environment

Resilient Domestic Demand Amid Pockets of Inflation Pressure
An Uncertain Global Environment Poses Downside Risks
Stress in the Euro Area and United States: Spillovers to Asia
How Vulnerable Are Asian Banks and Firms?
Policy Challenges

Chapter II: Drivers and Implications of Rapid Credit Growth in Emerging Asia

Episodes of Rapid Credit Growth in Emerging Asia
Domestic versus External Factors and the Role of Monetary Policy
Conclusions

Chapter III: Asia’s Quest for Inclusive Growth

How Does Asia Compare With Other Regions?
Poverty, Growth, and Inequality
Policies

Chapter IV: The Benefits of Further Financial Integration in Asia

Assessing the Degree of Financial Integration in Asia
Risk Sharing versus Contagion
Policy Implications
Conclusions

Chapter V: Asian Low-Income and Pacific Island Countries: Managing Inflation Risks and Strengthening Growth Prospects

Recent Inflation Trends in Asian LICs
Pacific Island Countries: Improving Resilience to External Shocks

References