Asia's economy to reach over 7 pc: IMF

Singapore, Sep 16 (UNI) The International Monetary Fund (IMF) today said Asia appears well poised to continue its strong economic performance of recent years, with growth expected to reach 7.3 per cent this year, and about 7 per cent in 2007.

''The projected moderation next year reflects a modest decline in export growth, as growth in industrial countries, while remaining quite strong, slows,'' said IMF Asia and Pacific Department Director David Burton highlighting key findings of the IMF September 2006 Asia and Pacific Regional Economic Outlook.

At the same time, with the interest rate cycle in Asia likely nearing its peak and the prospect of stability in oil prices, domestic demand should hold up well, even as export growth moderates. The external current account for the region as a whole is expected to remain broadly unchanged this year and next, at about 3.5 per cent of GDP, he said.

Inflation remains well contained, at less than 3 per cent on average. Proactive monetary policy tightening and exchange rate appreciation have helped offset the impact of higher oil and other commodity prices. Inflation expectations remain in check, and a similarly benign inflation outlook is projected for next year.

Nevertheless, upside risks to inflation remain, and central banks in the region will need to continue to monitor developments closely.

Prospects for capital flows to emerging Asia also remain good.

Global financial market volatility in May and June illustrated the region's resilience, as it came through less affected than emerging markets in other regions. Investors do not appear to have altered their positive view of the region, which bodes well for the continuation of strong FDI flows, but portfolio flows may moderate as global monetary tightening continues. Although the outlook is positive, there are some important near-term risks, he pointed out.

The key risk for Asia is a more-rapid-than-expected slowdown in the United States economy. A sharper than expected slowdown in the US owing, for example, a large correction in the US housing market would have a significant impact on the region's exports and, indirectly, on domestic demand.

Higher oil prices could also affect both growth and inflation.

Thirdly, a more fundamental turn away by investors from emerging markets than that seen in mid-year could also slow growth and weaken regional currencies.

On the whole, however, the region seems well-placed to deal with any risks that may materialise, Mr Bourton said.

''The boom in Asia is now in its fifth year, and the region faces important challenges in the medium term as it seeks to sustain its impressive economic performance. Our Regional Economic Outlook examines these challenges and suggests some policy approaches that could continue to keep Asia's engine of strong growth humming,'' he added.

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