Growth in Asia is expected to pick up this year, after slowing in the last quarter of 2011, but Asian policymakers now face the challenging task of adjusting policies to support stable, non-inflationary growth, the International Monetary Fund (IMF) said in its latest Regional Economic Outlook for Asia and the Pacific, released in Kuala Lumpur, Malaysia.
''Asia has continued to enjoy robust domestic demand against the background of fragile global growth. This has been reflected in low unemployment and robust credit growth in the region. Inflation expectations have also picked up in many countries, and capital inflows into emerging Asia have rebounded so far in 2012'', say IMF economists.
The IMF forecasts regional growth of 6 per cent this year, roughly the same level as in 2011, and about 6.5 per cent per cent in 2013. But there remains considerable regional variation. Emerging Asia will remain the fastest growing region in the world, led by China and India, expanding at 8.25 per cent and close to 7 per cent, respectively, this year, the report said.
At the same time, the report cautions about the slump in Europe. A sharp fall in exports to advanced economies and a reversal of foreign capital flows would severely impact the Asian region. The report also cites higher and more volatile energy prices as a risk for activity, and a source of difficult trade-offs between inflationary pressures and budgetary pressures from energy and food subsidies.
There are also upside risks. Because macroeconomic policy has remained generally accommodative, further stabilisation of global economic and financial conditions over the course of 2012 could boost growth and revive overheating pressures in the region, it said.
The report suggests that inflation will decline modestly in 2012, averaging some 3.5 per cent. But this partly reflects a normalising of commodity prices and, in several cases, sustained demand pressures mean inflation is likely to remain above explicit or implicit target ranges.