Shoppers in Beijing, China: greater reliance on Asian domestic demand will be important, says IMF (photo: Stephen Shaver/UPI)
ASIAN ECONOMIC OUTLOOK
China and India will continue to lead the way, with growth rates of 10.0 percent and 8.4 percent, respectively. Japan, the largest economy in the region, is likely to see growth broadly unchanged at 2.3 percent as the recovery firms. David Burton, head of the IMF's Asia and Pacific Department, told a press briefing on April 13 that the forecast reflected a modest easing of external demand, particularly in the United States, and also assumed an effective tightening of policies in China and India.
With the expected moderation in export growth, the regional current account surplus is forecast to stabilize at about 4¼ percent of GDP. "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," Burton said.
Inflation pressures are contained throughout much of Asia, albeit less so in India and Vietnam, according to the report. In a few countries, high credit growth and, in some cases, asset price rises are causes for concern, and the authorities will need to remain vigilant and ready to further tighten monetary conditions as needed.
Strong investor interest
"Asian financial markets demonstrated their resilience in the bouts of global market turbulence seen in mid-2006 and again in February-March of this year, generally faring better than emerging markets in other regions. Looking ahead, Asia's good economic prospects point to continued strong investor interest in the region," Burton said.
On balance, the risks to this positive forecast are on the downside reflecting the possibility of slower than expected growth in the U.S., an upward spike in oil prices and a return of financial market turbulence. An upside risk to growth stems from India and China to the extent that measures to cool those economies fail to gain traction.
Although economic prospects for the region remain strong, policymakers nevertheless face a range of challenges, including issues relating to the integration and deepening of Asia's financial system and developments in the global terms of trade.
While net capital flows to the region remain close to their long-term average of about 2 percent of GDP, gross inflows and outflows have increased sharply in recent years. And, while Asian currencies have seen upward pressure and reserves have continued to accumulate in the region, current account surpluses rather than capital inflows have been the major cause. The increased volatility of capital flows, points to the need to enhance the development and resilience of financial systems. A further gradual liberalization of capital accounts should go hand in hand with this process.
The report noted that housing prices have risen somewhat faster than inflation in recent years, and there are pockets of rapidly rising prices in Asia. That said, housing affordability has not deteriorated markedly outside of Australia and New Zealand as incomes have kept pace with housing prices. Although judgments in this area are difficult, there is no clear evidence that housing prices are significantly out of line for the region as a whole.
Finally, the report looked at the effects of commodity price booms on a number of Asia's lower-income countries. The challenge for policymakers is to respond to this positive "shock" by formulating a forward-looking strategy to manage—and spend—the resource related revenues in a way that ensures intergenerational equity and long-term development.
