No immediate crisis for Asia Pacific

Washington: Economic developments in Asia have been positive so far in 2007 and the region does not face any immediate crisis as a result of the credit crisis in the US and Europe, the International Monetary Fund said in its Regional Economic Outlook for Asia Pacific.

The report said the strong economic fundamentals and healthy corporate and banking sector balance sheets in the Asian region should help to limit the adverse impact from the recent global financial turmoil.

Growth has been stronger than expected across much of the region and exports have remained an important driver of activity. China and India continued to lead the way, with high growth backed by strong investment, the IMF said.

Projection

The IMF has modestly lowered its projection for Indian economic growth to 8.9 per cent during 2007 from its earlier estimate of nine per cent. The weaker US outlook is expected to hit Asian economies, particularly the newly industrialised ones.

"The regional economy is now expected to expand by 9.2 per cent this year and 8.3 per cent in 2008... The Indian economy is expected to expand by 8.9 percent this year and 8.4 per cent in 2008," the Fund said.

According to the outlook, the Chinese economy will expand at 11.5 per cent in 2007 before slowing to 10 per cent next year.

Inflation pressures have remained contained across most of Asia, although food prices have added volatility to the headline numbers in a number of economies. Effective exchange rates have appreciated only modestly, although the region's current account surplus has remained large, and reserve growth has continued. While some currencies in the region such as the Indian rupee has risen significantly against the US dollar, in some currencies such as the yuan, effective appreciations has generally been lower.

Much of the exchange rate pressure continues to stem from current account surpluses, although outside China these are moderating as a share of GDP.

Currency inflows

Sustained foreign currency inflows have pushed reserves past the $4 trillion mark for the region, with China accounting for the bulk of this increase.

The report observed that financial systems in Asia appear well placed to handle the effects of the global financial market turbulence that broke out in July. Asia was not at the epicenter of the recent turmoil, and markets and financial institutions in the region have been less affected to date than those in the United States and Europe.

IMF economists said that the risks to the overall outlook for the region are broadly balanced. The possibility of financial market stress feeding into a sharper-than-expected slowdown in exports is offset by that of continued growth out-performance in China and India, the said.