Bright Asian economic prospects

• Position: IMF Asia and Pacific Department
• Pages: 137-143

Page 137

Asia's economic outlook is bright, with GDP expected to grow by 5 1/4 percent in 2005, but major risks include rising oil prices and widening global imbalances. A key issue shaping the region is the end-2004 phase-out of global textile and clothing quotas, which holds the promise of substantial benefits to the world's consumers, although protectionist pressures will need to be kept at bay.

Page 142

Asia's economic outlook is bright, but risks loom

Decades of rapid growth have made Asia's economies a vitally important part of the world economy. Three out of the world's 10 largest economies are in Asia:

Japan, China, and Korea. Asia accounts for about one-fifth of global output and nearly half of recent world economic growth. Global growth in the coming years thus depends, in no small measure, on what happens in Asia. This article examines Asia's economic outlook and shifts in production patterns that are occurring with the recent end of the system of global textile quotas. It is the first in a series of quarterly articles that the IMF Survey plans to run on Asia, which will look at economic trends in the region and topical policy issues.

This year is shaping up to be another good one for the region, with GDP expected to grow by 5 1/4 percent. This is somewhat slower than last year's rate of 6 1/4 percent, but last year's growth was the best in almost a decade, partly due to a surge in the region's exports (see chart). In particular, demand for electronics exports boomed as the sector finally recovered from its post-2000 slump, resulting in a 41 percent increase in Asian sales of semiconductors. Export growth in 2005 should subside to more normal rates as the electronics expansion matures, slowing GDP growth to a more sustainable rate. Emerging Asia-China, India, the NIEs (Newly Industrialized Economies-Hong Kong SAR, Singapore, and Taiwan Province of China), and the ASEAN4 (Indonesia, Malaysia, the Philippines, and Thailand)-is projected to grow by 6 1/2 percent, compared with 7 1/2 percent in 2004.

The outlook for other economic indicators is generally favorable. The region's current account surplus is forecast to narrow modestly to 2 1/4 percent of GDP from 3 1/4 percent of GDP, reflecting the export slowdown. Meanwhile, regional inflation is projected to remain at 3 percent.

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Three major risks loom, however...