Fears about the spillovers from global economic recovery amid still high inflation pressures in much of the region mean that policymakers in Asia face a delicate balancing act, the International Monetary Fund (IMF) said here on Thursday.
Growth in Asia has slowed pace since the second quarter of 2011, mainly reflecting a weakening of external demand, the Washington- based IMF said in its latest Regional Economic Outlook (REO) for Asia and the Pacific.
Domestic demand still remains resilient, and it should continue to sustain activity across the region, contributing to relatively robust growth of 6.3 percent in 2011 and 6.7 percent in 2012 on average, slightly below the global lender's forecasts in April, noted the REO report.
Domestic demand in Japan is picking up as reconstruction efforts get under way following the earthquake and tsunami earlier this year, and economic growth is expected to reach 2.3 percent next year, said the IMF.
An escalation of the euro area financial turbulence and a more severe slowdown than anticipated in the United States would have clear macroeconomic and financial spillovers to Asia, warned the report.
The IMF cautioned that the crisis in advanced economies is a reminder of the need for Asia to now make further progress with economic rebalancing and develop stronger domestic engines of growth.
"In addition to structural reforms, this would require a reprioritization of fiscal spending, in order to create fiscal space for critical infrastructure investment and social priority expenditure," added the report.