Asia and Pacific Regional Economic Outlook

September 2006

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Executive Summary

This report gives the IMF's view of the outlook for Asia, identifies the main risks to growth, and considers the key factors that will influence capital inflows. The REO also discusses short-run macroeconomic policy issues for the region, as well as longer-term challenges, including the need to raise consumption and rebalance growth, develop further regional financial and capital markets, and address growing income inequality.

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Executive Summary
I.   Recent Developments and Outlook
  External Sector
II.   Financial Developments in Emerging Asia
  Assessment of the Recent Correction
  Outlook for Capital Inflows to Emerging Asia
III.   Macroeconomic Policy Issues
  Monetary Policy
  Fiscal Policy
IV.   Asian Equity Markets: Growth, Opportunities, and Challenges
  The Emergence of Asian Stock Markets
  Performance of Asian Emerging Stock Markets
  Valuation of Asian Markets
  Equity Prices and Economic Activity
  Policy Implications
V.   Private Consumption in Emerging Asia
  Private Consumption Trends in Emerging Asia
  Determinants of Private Consumption in Emerging Asia
  Estimation Results
  Is Private Consumption in Emerging Asia Too Low?
  Potential Policy Implications
VI.   Rising Inequality and Polarization in Asia
  Trends and Patterns
  Determinants of Inequality and Polarization
  Did the Asian Crisis Increase Inequality
  Data Appendix
1.1.   Outlook for Asia’s Electronics Sector
1.2.   The Impact of Japan’s Recovery on Asia
1.3.   Spillovers from Asia Are Affecting Australia and New Zealand
1.4.   Worker’s Remittances: A Gravity Model
1.5.   Pacific Island Countries: Regional Issues and Prospects
2.1.   Hedge Funds—Recent Developments in Asia
4.1.   Capital Flows in Emerging Asia: How Volatile Are They?
4.2.   Fostering Financial Integration and Economic Stability
5.1.   Credit, Investment, and Growth in Post-Crisis Asia: A Tale of Two Sectors
6.1.   Spatial Inequality in China and India
6.2.   Income Inequality and Social Polarization in Korea