The IMF said on Friday Asia should be ready to tighten monetary policies if overheating pressures emerge, while remaining alert to any future shocks from a still volatile global climate.
The International Monetary Fund said in its World Economic Outlook report earlier this month that Asia’s growth prospects had dimmed but the region would avoid a hard landing this year thanks to strong domestic demand and monetary flexibility.
Regional growth would flatten out at six percent this year, from 5.9 percent in 2011, before reviving to 6.5 percent in 2013, it said, still much ahead of growth rates in the advanced economies.
But Anoop Singh, director of the IMF’s Asia Pacific department, warned on Friday that export-dependent Asia could be hit should there be another slump in advanced economies, as well as by volatile commodity prices, especially high oil prices, and volatile capital flows.
“Continued volatility are the risks I see for Asia looking ahead,” Singh said when launching IMF’s Regional Economic Outlook, a separate report following the World Economic Outlook, in Kuala Lumpur.
He added “overheating pressures” could develop in the second half of this year so that policymakers should be ready to adjust their policies to support stable, non-inflationary growth.
“In the short term, assuming that market conditions continue to stabilise, as they have in the last few months, there is a concern that overheating pressures could again begin to assert themselves in Asia,” he said.
He said core inflation in many countries was still “quite high.” He added it was also important for Asia, especially China, to further develop domestic demand and attract investment.
The IMF’s World Economic Outlook report for 2012 said recessions in Europe and turmoil in the Middle East had hit Asia’s export markets, forcing downward revisions to regional growth forecasts.
But it said resilient domestic demand in China, the world’s second biggest economy, and the capacity of Asian banks to fill the liquidity gap left by constrained European lending would help growth recover in 2013.
Emerging Asia – excluding the advanced economies of Australia, Japan and New Zealand – would see growth fall 0.5 percent this year to 6.8 percent, before rising to 7.4 percent next year.
Growth in China has slowed recently, falling to 8.1 percent in the first quarter from 9.7 percent a year earlier, as domestic demand drops and Europe’s debt woes curb business activity.