Asia's growth to moderate on rising inflation, weak global demand: ADB

ISLAMABAD: After a strong rebound in 2010, economic growth in emerging East Asia will moderate this year and in 2012 as authorities continues to battle inflation and as advanced economies try to shore up an anemic recovery, says the July edition of the Asian Development Bank’s (ADB) Asia Economic Monitor (AEM) released here on Thursday.

The report forecasts aggregate GDP growth for emerging East Asia economies of 7.9 percent in 2011 and 7.7 percent in 2012. In 2010 aggregate growth reached 9.3 percent.

“Growth is easing in most of emerging East Asia as authorities wind down fiscal stimulus measures and tighten monetary policies to counter rising inflation,” said Iwan Azis, Head of ADB’s Office of

Regional Economic Integration that prepared the report. “This is actually a good thing so stronger economies like the People’s Republic of China (PRC) don’t overheat.”

The AEM, a semi-annual report, assesses the outlook of the 10 members of the Association of Southeast Asian Nations (ASEAN); the PRC; Hong Kong, China; Republic of Korea; and Taipei, China.

Growth in PRC moderated slightly to 9.5 percent in the second quarter of 2011 from 9.7 percent in the first quarter.

Looking ahead, a slow external environment and tighter monetary stance are expected to moderate growth to more sustainable levels of 9.6 percent for the full year and 9.2 percent in 2012.

The highly trade-dependent Newly Industrialized Economies of Hong Kong, China; Republic of Korea; Singapore and Taipei, China should also see a return to more sustainable long- term levels of growth as a weakened external environment slows exports.

Three of ASEAN’s middle income economies Malaysia, the Philippines and Thailandshould see growth taper due to diminished export demand and tighter monetary policy. Indonesia stands to buck the trend with strong domestic demand expected to drive growth to 6.4 percent in 2011, above its 6.1 percent growth in 2010.

The ADB report highlights the risk of rising inflation leading to wage-price spirals that could derail the region’s growth.

Other risks to the outlook include a more tepid than expected recovery in Japan and unresolved debt problems in the US and eurozone increasing financial market volatility; and destabilizing capital flows.

The report also contains a special section on how authorities can respond to inflation driven by surging commodity prices.

It suggests that a pragmatic approach to a range of policies may help governments manage the inflationary impact of sustained and volatile changes in commodity prices. It also points out that greater exchange rate flexibility can help mitigate the effects of global commodity price surges on domestic prices.

Copyright PPI (Pakistan Press International), 2011