Growth in East Asia likely to ease to 7.6%

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Growth in East Asia likely to ease to 7.6% - ADB

(Agencies)
Updated: 2008-07-22 14:08

MANILA -- Rising food and energy prices and volatility in financial markets are likely to ease this year's growth across emerging East Asia to 7.6 percent from 9 percent last year, the Asian Development Bank said Tuesday.

The Manila-based lender said inflation was expected to rise to 6.3 percent, more than double the average rate of the past 10 years, straining the budget of average households in a region where half of monthly home expenditures is for food and fuel.

"Rising inflation is a serious threat to the region's sustained, strong growth as high import costs of food and fuel threaten to trigger a price/wage spiral, unleashing more inflation," ADB economist Jong-Wha Lee said in the bank's semiannual report.

In a bid to rein in inflation, monetary authorities have begun tightening credit in recent months, but many economies remain behind the curve because of local constraints and the weak global economic outlook, the report said.

Economic growth in China, the region's powerhouse, is expected to slow to 9.9 percent in 2008 and 9.7 percent in 2009 due to a gradual appreciation of the yuan, monetary tightening policies and weakening external demand, the ADB said. That's down from a growth rate of 11.9 percent in 2007.

Growth in the 10-member Association of Southeast Asian Nations is forecast to ease by 1 percentage point to 5.5 percent in 2008, the bank said.

The ADB also said limited currency flexibility across much of the region has tied the hands of monetary authorities in their efforts to combat inflation.

"Allowing more exchange rate flexibility can help mitigate imported inflation ... and also give more wiggle room to monetary authorities," said Lee.

The bank warned that administrative controls to tame inflation through subsidies and price-fixing to help the poor and vulnerable may lead to problems later.

Emerging East Asia comprises Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, South Korea, Thailand and Vietnam and China's regions as Hong Kong and Taiwan.