Article

2006 Regional Economic Outlook: Asian Growth to Remain Buoyant

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
May 2006
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Asia is expected to have another good year in 2006, according to the IMF’s May Asia-Pacific Regional Economic Outlook. The report, to be launched in Hong Kong SAR on May 2, projects that regional growth will again amount to a robust 7 percent this year, the same as last year. In Japan, the recovery is expected to continue, with domestic demand strengthening thanks to robust corporate investment and a firming labor market, which is stimulating household incomes and consumption.

Meanwhile, economies in emerging Asia will continue to benefit from a surge in external demand for the region’s products, especially electronics. And while domestic demand had long been tepid—China and India excepted—it has been gaining traction since early 2005.

This outlook, however, is not without significant risks, notably from rising oil prices. These have so far had only a moderate effect on Asia’s growth, because they have been associated mainly with increases in global demand, which have also led to a compensating increase in demand for Asia’s exports. But this may change, since concerns about future supply have now become the prime mover of prices.

Steady growth, low inflation

Asia is projected to grow at 7 percent, supported by the well-established economic expansion in Japan and Australia and solid growth in most of emerging Asia. Inflation, forecast at 3 percent, will remain subdued.

Real GDP growthConsumer price inflation
(y-o-y percent change)(y-o-y (percent change average)
Proj.Proj.Proj.Proj.
200520062007200520062007
Industrial Asia2.72.82.20.20.70.9
Japan2.72.82.1-0.30.20.6
Australia2.52.93.22.72.92.7
New Zealand2.00.92.13.02.72.4
Emerging Asia8.38.07.73.23.53.2
China9.99.59.01.82.02.2
India18.07.37.04.75.15.5
NIEs24.55.24.52.32.12.3
ASEAN-435.25.15.77.58.94.6
Asia7.16.96.62.62.92.8

Inflation figures are based on wholesale prices.

The NIEs (newly industrialized economies) are Hong Kong SAR, Korea, Singapore, and Taiwan Province of China.

Indonesia, Malaysia, the Philippines, and Thailand.

Data: IMF, Asia and Pacific Department core database and staff estimates.

Inflation figures are based on wholesale prices.

The NIEs (newly industrialized economies) are Hong Kong SAR, Korea, Singapore, and Taiwan Province of China.

Indonesia, Malaysia, the Philippines, and Thailand.

Data: IMF, Asia and Pacific Department core database and staff estimates.

Surpluses diminishing

While current account balances are expected to further deteriorate in Japan and India, they are projected to stabilize in China and the ASEAN-4 and improve slightly in the NIEs.

Current account balancesNon-oil current account balance
Proj.Proj.Est.Proj.Proj.
20042005200620072004200520062007
(percent of GDP)
Industrial Asia2.42.11.71.53.84.04.14.0
Japan3.83.63.22.95.35.85.85.7
Australia-6.3-5.9-5.6-5.5-5.9-5.5-5.0-4.8
New Zealand-6.7-8.9-8.9-7.6-4.3-6.1-6.0-4.8
Emerging Asia4.25.04.54.47.79.810.210.5
China3.67.16.96.77.312.914.014.7
India0.2-1.8-3.1-3.13.41.41.00.8
NIEs17.06.05.75.610.810.710.710.7
ASEAN-424.43.12.82.57.07.27.06.4
Asia3.23.53.23.15.66.87.37.5
Emerging Asia
excl. China4.73.42.72.58.07.47.27.0

The NIEs (newly industrialized economies) are Hong Kong SAR, Korea, Singapore, and Taiwan Province of China

Indonesia, Malaysia, the Philippines, and Thailand.

Data: IMF World Economic Outlook April 2006; Asia and Pacific Department core database; and staff estimates.

The NIEs (newly industrialized economies) are Hong Kong SAR, Korea, Singapore, and Taiwan Province of China

Indonesia, Malaysia, the Philippines, and Thailand.

Data: IMF World Economic Outlook April 2006; Asia and Pacific Department core database; and staff estimates.

At the same time, global financial market conditions are tightening, potentially leading to reductions in capital inflows and declines in asset prices, which could put some stress on borrowers, especially consumers, who have been increasing their debt rapidly. Other notable risks include a potential disorderly unwinding of the global imbalances, and avian flu.

Meanwhile, inflation, projected to average 3 percent in 2006, remains subdued. However, the situation varies across the region, with price pressure being stronger in the ASEAN-4 countries (Indonesia, Malaysia, the Philippines, and Thailand). Even there, however, inflation should slow over the course of the year, as the influence of domestic oil price adjustments wanes and recent monetary tightening takes hold.

Current account surpluses are diminishing in most countries under the weight of growing oil import bills and, in some countries, stronger domestic demand. In emerging Asia, excluding China, the surplus is expected to fall to 2¾ percent of GDP this year, about half its 2004 level. In contrast, China’s current account surplus more than doubled in 2005 as exports surged, reaching 7 percent of GDP, a level that is likely to be maintained this year.

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