IMF Estimates Asia Growth At 5.75%, But Warns Of Asset Bubbles And A ‘Delicate Balancing Act’

Economic growth this year in Asia will again emerge as the global pacesetter, but the volume of money pouring into the region risks out-of-control inflation, excessive debt and unsustainable prices for real estate, currencies and stocks, the International Monetary Fund said on Monday.

In its annual report on Asia, the IMF estimated that the region's economic growth in 2013 will be a robust 5.7 percent, far better than is expected in the U.S., Europe, Latin America and Africa.

The IMF anticipates China will end the year with 8 percent gross domestic product growth, while the Philippines, Indonesia, Myanmar and Cambodia will see growth rates of more than 6 percent.

“Notably in China and, to a lesser extent, leading Asean (Association of Southeast Asian Nations) economies, private domestic demand has remained robust with relatively favorable financial and labor market conditions supporting stable consumer confidence, buoyant investment and robust retail sales,” the report said.

It added, the region’s policymakers face a “delicate balancing act,” namely from a loss of confidence in Japan’s efforts to reinvigorate its stalled economy, an unexpected sharp slowdown in China and a buildup of financial imbalances as prices surge to potentially unsustainable levels.

The report warned of a considerable rise in asset prices as investors scour the 10 Asean economies, causing stock markets in the region to hit a series of record highs.

Overall, lax monetary policy is helping robust capital inflows into the region that could pose a risk in the near future, the IMF said. Real estate prices in Hong Kong have doubled since 2009, signaling a possible bubble in such assets. Currencies such as the Philippines peso and the Thai baht have risen quickly against the dollar, which can harm exports. Public and private borrowing costs have hit record lows, encouraging an accumulation of debt.

“The potential impact of external shocks on Asia’s open economies remains considerable, and risks and challenges from within the region have come into clearer focus in recent months,” the report said. “To begin with, financial imbalances and rising asset prices, fueled by strong credit growth and easy financing conditions, are building in several economies.”