The International Monetary Fund (IMF) says the Asian region and Australia should be able to cope with any lingering fallout from the US subprime mortgage market crisis.
It says strong economic fundamentals and healthy corporate and banking sector balance sheets in the Asia region should help limit the adverse impact from the recent global financial market turmoil.
In its Regional Economic Outlook for Asia and Pacific – complementing its World Economic Outlook released earlier this week – the IMF says the risks to its forecasts are evenly balanced.
It says if financial market turbulence persists and leads to a much sharper than expected slowdown in the United States and the Euro area, it could spill over into Asia.
“The impact could be felt on a broader range of households as well as banks and corporations in mature markets,” it adds.
The IMF says investors could become more selective in where they invest in Asia, although effects on the region will be mixed.
Countries requiring foreign savings to finance current account deficits will be negatively affected, as would high risk companies that are unable to self-fund and need to turn to the capital markets and pay higher interest rates.
“On the other hand, lower capital flows could ease pressure on currencies to appreciate, providing some relief on the competitiveness front,” it adds.
The IMF says geopolitical tension could also create a supply-related oil price spike and inflation pressures.