IMF Expects 7% Growth for Asia But Wary Over Oil

The International Monetary Fund (IMF) forecast 7.0 percent economic growth across Asia for 2006 but warned of significant risks such as sharply higher oil prices.

Regional growth was expected to match last year's performance, as domestic demand strengthens in Japan and China while exports continue strong and inflation is around 3.0 percent.  "This favorable outlook derives mainly from the momentum that Asia has gathered in recent quarters," said Wanda Tseng, Deputy Director of the IMF's Asian Department on the release of the Regional Economic Outlook.

It noted that China's current account surplus more than doubled last year as exports continued to grow sharply, meaning increased consumption was the key issue as Beijing tries to rebalance the economy onto a more sustainable path.  China has been putting more emphasis on domestic consumption with the aim of raising living standards all around and to avoid some of the trade frictions its exports have caused.  However, while the agency remained upbeat Tseng added that current account imbalances, higher interest rates and a possible spread of avian flu were threats to regional economies.  She told AFP the IMF had based its forecasts on oil prices of around 461.25 a barrel -- which compares with current levels of above $73s.  At $70 for the year, she said, about 0.2 percentage points of growth would be wiped off global economies and a similar figure could be applied to Asia, where many countries are oil-dependent.

Tensions in Nigeria and the Middle East and Bolivia's announcement that it is nationalizing its oil and gas industry have chilled oil markets with prices expected to go higher. "Bolivia is a new development but there are uncertainties in Nigeria, Iran, Iraq -- these three countries account for something like 11 percent of world oil output," Tseng noted.  "You can imagine that any further uncertainty with respect to Bolivia will also have an impact on prices."

Financial markets have been haunted by the prospect of historically high prices fuelling inflation, leading to further interest rate hikes at a time of global current account imbalances and a falling US dollar.  The Group of Seven has called for regional currencies to be allowed to appreciate against the dollar as part of a wider resolution of global imbalances -- code for the massive US trade and current account deficits.  "A disorderly unwinding of these imbalances that causes a sharp slowdown of US demand would have a significant consequences for the region's exports," Tseng said.  As a result, central banks and governments must maintain a delicate balancing act to deal with inflation while not endangering domestic demand, at the same time as strengthening their fiscal positions and reducing debt.

The "low probability, high impact event" was the possible outbreak of an avian flu pandemic which would severely disrupt regional growth but Tseng added that SARS in 2003 meant many countries in the region were better prepared to tackle the disease.

China is expected to grow at 9.5 percent this year and India 7.3 percent, while Hong Kong, South Korea, Singapore and Taiwan are put on 5.2 percent.  Indonesia, Malaysia, the Philippines and Thailand are forecast to grow 5.1 percent.  Australian was expected to expand 3.0 percent as firms alleviate bottlenecks in the wake of a commodity price boom.  However New Zealand would slip to around 1.0 percent as the domestic housing market slows.  Low income countries -- Vietnam, Cambodia and Laos -- were also expected to grow strongly but corporate governance issues needed to be addressed to improve the investment climate, the IMF said.