Asia is likely to sprint ahead of the rest of the world this year but the lingering uncertainty of a Middle East war and slowing US economy can derail the region's growth engine, an IMF official said yesterday.
Excluding Japan, the region is projected to post a 6 percent increase in economic output this year which will make it the fastest growing geographical area in the world, said David Burton, the IMF's Asia-Pacific director.
Last year, the region's real GDP rose more than 6 percent due largely to an 8 percent expansion in China, he said.
But the global economy, and particularly Asia, still remains heavily influenced by the US, and any deterioration in the world's biggest economy will have widespread effect, Burton warned.
"Turning to 2003, prospects for the region will depend significantly on developments in the global economy about which there is considerable uncertainty," Burton said in a luncheon speech.
"Global recovery remains heavily dependent on developments in the United States, and if US growth were to falter there is no obvious candidate to take up the slack," he said. "Moreover, growth in the advanced economies has slowed in recent months, and forward-looking indicators are not particularly encouraging."
Still, the IMF said it was optimistic the region would be able to withstand an external shock since policymakers in most of the economies have already implemented some measures to boost growth.
"While there are downside risks, the most likely scenario is for the recovery to gradually gather momentum during the year," he said.
"Reasons for thinking this include the policy stimulus already in the pipeline in advanced econo-mies, and the likelihood that by now we have seen the worst of the fallout from the bursting of the equity market bubble," he said.
Should the global economy weaken, Asian policymakers can resort to using macroeconomic measures, particularly monetary policy, to cushion the impact of a worldwide slowdown, Burton said.
"Monetary policy should generally be the first line of defense," said Burton.
"With inflation low in most countries in the region, there is scope for further easing of monetary policy should growth falter," Burton added.
Another macroeconomic tool the region can opt to use is to run fiscal deficits since most of the economies' public debts are deemed at acceptable levels, he said.
"Budgetary positions are sound and public debt levels moderate or low in some countries, reflecting a strong tradition of fiscal prudence in the region," the IMF official said, using South Korea and Singapore as example.
"Thus, there is room for these economies to allow higher budget deficits ... and to introduce quick acting and temporary budgetary measures to support activity," he said.
Singapore announced last week it would likely run a budget deficit in the year to March next year for the third successive year.
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