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Sep 16, 2006 at 05:56pm IST

IMF sees strong Asia growth

Singapore: Asia's economic output is likely to remain strong in 2006 and in 2007, but monetary and fiscal policy will prove challenging during this period, the International Monetary Fund said on Saturday.

In a detailed report on Asia's economic outlook released ahead of the IMF and World Bank annual meetings, the IMF projected a slight slowdown in export growth – in a region where exports are the equivalent of between 40 and 200 percent of GDP – but it said capital flows into Asia would remain robust.

It said monetary tightening in Asia had managed to rein in inflationary pressures and interest rates had probably peaked. Policy setting could become challenging, the IMF said, owing to the upside risks to inflation, the narrowing interest differential with the US, the possible sharp slowing of growth without an accompanying easing in inflation and the risks to the banking sector from rapid credit growth.

MONEY MATTERS: IMF said capital flows into Asia would remain robust.

"Looking forward, there may be scope for a loosening of monetary policy in some countries, but high oil prices and narrowing interest rate differentials with industrial countries will pose constraints," it said.

Longer-term fiscal challenges remained, such as upgrading infrastructure and costs related to ageing societies. "Fiscal policy has in most countries been broadly appropriate, but some countries have not taken full advantage of rapid growth to make progress on fiscal consolidation," the IMF said.

It forecast growth in Asia -- including emerging Asia, Japan, Australia and New Zealand -- would reach 7.3 per cent this year and then decline marginally to 7.1 per cent in 2007, still outpacing other regions.

It defines emerging Asia as China, India, Hong Kong, Korea, Singapore, Taiwan, Indonesia, Malaysia, the Philippines and Thailand.