KUALA LUMPUR: Growth in Asean’s top five economies including Malaysia will remain strong at an average six per cent this year on resilient domestic demand, the International Monetary Fund (IMF) said.

In the case of Malaysia, the IMF said a large pipeline of projects under the Economic Tranformation Programme will propel strong investment locally.

The fund expects the local economy to grow by 5.1 per cent this year and 5.2 per cent in 2014.

Consumer prices are expected to expand by 2.2 per cent and 2.4 per cent in 2013 and 2014, respectively.

For the Asean-5, which also includes Indonesia, Thailand, the Philippines and Vietnam, growth will average 4.5 per cent for 2013 and 2014, with Vietnam likely to lead the pack with its above eight per cent growth projection.

The IMF, in its April 2013 World Economic Outlook (WEO), however warned that the potential impact of external risks on Asia remains considerable.

“In the event of a severe global slowdown, falling external demand would exert a powerful drag on Asia’s most open economies, including through the second round impact of lower investment and employment in export-oriented sectors.”

It commented that although the balance of risks to global growth has improved since its outlook in October, the road to recovery remains bumpy and uneven for advanced economies.

For Asia as a whole, the IMF said growth will pick up modestly to about 5.75 per cent in 2013, largely as a result of recovering external demand and continued solid domestic demand.

Asian economies will also benefit from internal demand spillovers, particularly growing Chinese demand and the policy-led pick-up in Japan.

“Indeed, for several economies, direct and indirect demand from China and Japan are almost as important as demand from the US and Europe.”

This dynamics, it added, may be complicated, however, by the recent yen depreciation, which may put some of the region’s exporters in more direct competition with Japanese firms in world markets, while others may benefit through supply chain linkages with Japan.

“The Asean economies have become increasingly competitive in production of final consumer goods, which will contribute favourably to intra-regional demand.”

Policymakers in the region, the fund said, must rebuild room for macroeconomic policy manoeuvring while containing financial stability risks.

“In emerging Asia, macroprudential measures will have to play an important role in those economies in which credit growth remains too rapid and threatens financial stability, especially if accompanied by persistently strong capital inflows, ” the IMF said.

Asian policymakers, it said, should also undertake coordinated and collective action to deepen regional trade integration.

By Rupa Damodaran