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Last Updated: Tuesday, 2 May 2006, 06:39 GMT 07:39 UK
IMF forecasts strong Asian growth
Petrol pump in Tokyo
Higher petrol prices could temper growth
Asia is set to see economic growth of 7% this year, according to a forecast by the International Monetary Fund.

The IMF's report said that the region has been boosted by growing demand for exports, notably in electronics, which was set to continue.

In addition, the report said, domestic demand - which has been "tepid" everywhere except China and India - has been picking up since early 2005.

But the rising price of oil still posed a threat to growth, the IMF warned.

While more expensive energy has had a limited effect to date, further increases could dampen economic growth, the IMF said.

Governments could be forced to raise domestic fuel prices to stay in keeping with international prices, it added.

The challenge then would be to cope with the resulting rise in inflation without depressing domestic demand once more.

Lower debts, better infrastructure

Even so, the IMF's overall outlook remains positive.

"The region should be able to weather such disturbances, since in sharp contrast to the mid-1990s, asset prices are not significantly overvalued and vulnerabilities are relatively low," it says.

Asian nations still need to lower their debts, the IMF argues, while at the same time improving their public services and infrastructure.

At the same time, continued growth could depend on reducing the propensity of Asian consumers - particularly in China - to save rather than spend, the IMF says.

One way to achieve this could be to improve public education, healthcare and pension provision.

Meanwhile bird flu could represent the biggest risk to the region, depending on how well the region is prepared - something which has not yet been tested.

Currency stability

The IMF report comes ahead of a meeting in India of finance ministers from the Association of Southeast Asian Nations (Asean), with India, China and Japan on Thursday.

Members are expected to discuss how to stop currency turmoil and strengthen their financial systems.

As developed nations consider raising their interest rates there are concerns from some that this could be to the detriment of Asia's economies.

The meeting will coincide with the Asian Development Bank's annual meeting.

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