Asia takes lead as regional outlooks remain strong

• Pages: 273-285

Page 273

Singapore showcased several of the IMF's Regional Economic Outlooks. David Burton and Wanda Tseng said that Asia's growth is expected to reach 7.3 percent in 2006 and dip slightly in 2007. Over the same period, sub-Saharan African growth is projected to slow to 4.8 percent but then pick up to almost 6 percent. Latin America and the Caribbean are expected to again see robust growth, averaging about 4¾ percent in 2006 and in the 4 percent range in 2007.

Page 284

Asia, facing continued strong growth, should rebalance economies

Asia, in the fifth year of an economic boom, is expected to post overall growth of 7.3 percent in 2006, up slightly from the previous year's 7.2 percent, before declining to 7.1 percent in 2007, according to the IMF's Regional Economic Outlook (see Table 1). The projected moderation next year reflects some modest easing of export performance because of slowing growth in industrial countries.

David Burton, Director of the IMF's Asia and Pacific Department, told a briefing in Singapore on September 16 that domestic demand in the region should hold up well, thanks to peaking interest rates and the expected stabilization of oil prices. Inflation appears to be well under control because many countries have been proactive in monetary tightening. Prospects for capital flows to emerging Asia remain good, as evidenced by the region's resilience in the face of the global financial market volatility in May and June.

The most important downside risk for Asia, the IMF said, could be a more-rapid-than-expected slowdown in the U.S. economy-particularly a sharp cooling of the U.S. housing market-which could affect U.S. demand and Asia's exports, indirectly dampening domestic demand in Asia. If these risks materialize, investors may turn away from emerging markets, slowing growth and weakening regional financial markets.

Despite the risks, Asia is well placed to weather any difficulties. Although the strategy of export-led growth has long been a successful one for Asia, sustained success will mean shifting away from a heavy dependence on exports and more toward domestic demand. "We think some rebalancing of growth would make the region less vulnerable to shifts in the global economy and would allow people in the region to begin to benefit more from the rapid growth," Burton said.

He said that consumption as a share of GDP is quite low by global...