After a year of subdued economic performance, growth in Asia is set to pick up this year driven largely by continued robust domestic demand, says the IMF in its latest Regional Economic Outlook, which predicts growth will reach about 5.75% in 2013.

Consumption and private investment will be supported by favorable labor market conditions in Asia. Unemployment is at multi-year lows in several economies. In addition, financial conditions remain relatively easy, notes the report.

Asia should also benefit from intra-regional demand spillovers mainly reflecting growing Chinese demand and policy stimulus in Japan. In the Association of Southeast Asian Nations, growing integration in final consumer goods will also benefit the region's economies.

But internal risks in the region are coming into clearer focus as a severe economic fallout from a worsening euro crisis diminishes.

Most importantly, strong credit growth and easy financing have fueled financial imbalances and rising asset prices. There could also be trade disruptions from a natural disaster, geopolitical tensions, a loss of confidence in Japan’s efforts to restore economic health, or a more severe slowdown in China.

Therefore, policymakers in the region face a delicate balancing act in the near term: guarding against the potential buildup of financial imbalances while delivering appropriate support for growth.

With inflation remaining low and stable, the current accommodative stance has generally served the region well. But financial imbalances are often persistent and cannot be easily unwound, the report points out.

Monetary policymakers should stand ready to respond early and decisively to shifting risks.

Visit ChinaMoneyNetwork.com for more great China Money Podcast audio and video Internet episodes covering important investment news and financial events in China, as well as daily news updates on important China business news happenings. Follow us on Twitter @chinamoneypod subscribe to all episodes on iTunes.