Press Release: IMF's April 2007 Asia and Pacific Regional Outlook Sees Continued Strong Growth in the Region, and Examines Capital Flows, Housing Prices and Commodity Price Booms

IMF News, April 13, 2007

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Canonical URL: Press Release: IMF's April 2007 Asia and Pacific Regional Outlook Sees Continued Strong Growth in the Region, and Examines Capital Flows, Housing Prices and Commodity Price Booms

2006 was described as "another year of strong growth in Asia."
The outlook for 2007 is for "continued solid economic performance," with only "a slight moderation in Asia's overall growth to just over 7 percent."
The forecast reflects "an easing of external demand, particularly from the U.S.," and "assumes an effective tightening of policies in China and India."
With the expected moderation in export growth, "the regional current account surplus is expected to stabilize at around 4¼ percent of GDP."
A policy objective highlighted: "A further rebalancing of growth away from exports and toward a greater reliance on domestic demand will be important over the medium term to put growth on a more sustainable footing."

"Inflation pressures are contained throughout much—though not all—of Asia."
Factors reducing price pressures in most ASEAN countries and the Newly Industrialized Economies:
- "relatively soft domestic demand growth"
- "some appreciation of exchange rates"
- "to a lesser extent, lower oil prices"
- "gradually rising real policy interest rates over the past two years"
Concerns identified:
- In a few countries, "high credit growth and, in some cases, asset price rises are causes of concern" and authorities should "remain vigilant and ready to further tighten monetary conditions as needed."
Asian financial markets "demonstrated their resilience" during global market turbulence in mid-2006 and February-March of 2007, "generally faring better than emerging markets in other regions."
Outlook: "Asia's good economic prospects point to continued strong investor interest in the region."

Main downside risks:
- "a larger than currently envisaged slowdown in the U.S."
- "the possibility of an upward spike in oil prices"
- "further bouts of financial turbulence, especially if either of the first two risks materialize"
Upside risk:
- "higher growth in India and China if measures to cool those economies fail to gain traction"

The report also examines:
- (i) the evolution of capital flows in Asia;
- (ii) housing price developments; and
- (iii) the effects of commodity price booms in lower-income countries.

Net capital flows to the Asia region:
- "remain close to their long-term average of about 2 percent of GDP"
- "have, in fact, declined from their recent peak in 2004"
While currencies have faced upward pressure and reserves have continued to accumulate, "current account surpluses rather than capital inflows have been the major cause."
Gross flows:
- "gross inflows and outflows have risen sharply and are at or close to historic highs."
- "capital outflows have increased nearly fivefold over the last decade."
- "The volatility of gross flows has risen markedly, with surges in inflows at times associated with strong pressures on exchange rates or asset prices."
Policy/structural implications:
- "The increase in the size and volatility of gross capital flows points, in particular, to the need to enhance the development and resilience of financial systems, including in the context of regional financial integration."
- "Further gradual liberalization of capital accounts should go hand in hand with this process."

Housing prices "have risen somewhat faster than inflation in recent years, and there are pockets of rapidly rising prices in Asia."
Affordability:
- "On the whole, there has not been a marked deterioration of affordability, excepting Australia and New Zealand, as real incomes have tended to outpace real housing price increases."
- Overall judgment: "although judgments in this area are difficult, there is no clear evidence that housing prices are significantly out of line in the region as a whole."

The global commodity price boom has been characterized as a positive "fiscal shock" for a number of lower-income countries in Asia.
Potential benefits: "the potential to improve living standards and reduce poverty."
Policy advice to governments in these countries:
- "formulate a transparent, forward-looking strategy to manage-and spend-resource revenues in a way that ensures intergenerational equity and long-term economic development."

Press Release: IMF's April 2007 Asia and Pacific Regional Economic Outlook, April 13, 2007.