Singapore, Sep 16 : Developing Asian economies will revert to a more moderate growth
outlook of 7.5 per cent this year and 7.2 per cent the next year after posting its fastest
growth of nine per cent in nearly two decades in 2007, the Asian Development Bank (ADB)
said in a new major report.
The Asian Development Outlook 2008 Update (ADO Update) also warns that inflationary
pressures in the region are mounting and could boil over if left unaddressed.
The report projects an inflation rate of 7.8 per cent in 2008 in Asia and the Pacific,
up from an earlier estimate of 5.1 per cent. In 2009, inflation could reach six per
cent.
Clouding the outlook for the region, the report notes, are the continued elevated level
of international oil and food prices, the persistence of high inflation, and a prolonged
slowdown in industrial countries.
The report highlights that a supply shortage will remain a dominant issue in global
commodity markets.
''While oil prices are likely to soften somewhat in the short run, they will remain
high and volatile in the long run. High oil prices are here to stay. And as food prices
are heavily influenced by oil prices, high food prices are here to stay as well,'' said
Ifzal Ali, Chief Economist of the Manila-based multilateral development bank.
The report also warns that the inflation spike now seen throughout developing Asia
cannot be blamed solely on cost-push factors, such as high global commodity prices.
Analysis in the ADO Update shows that demand-pull factors, in particular excess aggregate
demand and inflation expectations, account for a larger share of variations in domestic
price inflation.
''The impact of high food and oil prices on inflation has been muted in most of Asia,''
said Mr Ali.
''This central finding has vast implications for monetary policies in the region. In
particular, it means that monetary tightening will continue to be a principal instrument
for fighting inflation in Asia. It's time to tighten our belts and for governments to cut
subsidies, on fuel for example, that have shielded consumers from the brunt of the
increases. These subsidies are not sustainable. When the subsidies are removed, renewed
upward pressure will commence and will raise inflation,'' he stated.
The ADO Update urges developing Asian economies to address rising inflation even at the
expense of slower growth, adding that the region must learn to adjust to high commodity
prices.
The report also recognises that the regional outlook remains tied to the fortunes of
industrial countries.
''Uncoupling is a myth,'' said Mr Ali. ''Our study shows that the region still depends
on industrial countries to fuel its growth.
If the global slowdown extends beyond 2009, the repercussions for the region could be
severe,'' he added.
Overall, the report concludes, the key to fulfilling the region's enormous potential is
the speed and success by which macroeconomic stability is restored and requisite
structural reforms are adopted.
UNI XC PD RN0916
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--UNI
