China leads vibrant Asia economies
(Reuters)
Updated: 2006-09-14 16:16

Singapore - Led by China, emerging Asian economies will grow 8.3 percent in 2006, about half a percentage point more than previously thought, the International Monetary Fund said in a report on Thursday.
The strong outlook for Chinese mainland will bode especially well for Hong Kong, Indonesia, South Korea, the Philippines, Singapore and Thailand given their strong intraregional trade ties, the IMF said in its World Economic Outlook.

The IMF in April had forecast growth in emerging Asia this year at 7.9 percent.

"Growth continues to run above 8 percent in emerging Asia, with much of the momentum due to vibrant expansions in China and India," the IMF said.

The fund upgraded its growth forecast for China to 10 percent from 9.5 percent and for India to 8.3 percent from 7.3 percent.

There was also a chance that both countries may expand at an even faster pace this year thanks to strong global economic conditions.

The fund said while China's central bank had allowed limited movement in its exchange rate in recent months, further flexibility was needed.

"More substantial appreciation of the currency would help to reduce the current account surplus and give the central bank greater control of domestic monetary conditions," the IMF said.

"The central bank's current focus on limiting renminbi fluctuations against the dollar makes effective liquidity control difficult."

Direct measures of monetary control and limited interest rate increases by Beijing were not enough to restrain credit growth, creating worries about the possibility of an investment boom-bust cycle.

That could lead to overcapacity, weaker profits and balance sheet problems.

Near-term risks

Other near-term risks for Asia included higher oil prices, trade protectionism, an outbreak of bird flu and slower growth in Japan or the United States.

Tighter monetary policy could also lower growth prospects.

India may need to further tighten monetary policy to fight pressures from inflation in the face of strong domestic demand and high oil prices, the IMF said.

Global markets could take a hit, hurting growth prospects, although the fund said Asian economies were better positioned to handle a downturn thanks to healthy current account surpluses and fast-growing reserves.

The regional current account surplus will likely moderate by about 0.5 percentage point to around 4.25 percent of GDP in 2006-2007.

The fund said any currency reform would need to be supported by reform in the financial sector.