ADB: Asia's Growth to Moderate on Rising Inflation, Weak Global Demand

After a strong rebound in 2010, economic growth in emerging East Asia will moderate this year and in 2012 as authorities continue 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 yesterday.

 

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

 

“Growth is easing in most of emerging East Asia as authorities wind down fiscal stimulus measures and tighten monetary policies to counter rising inflation,” says 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 semiannual 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% in the second quarter of 2011 from 9.7% 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% for the full year and 9.2% 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 Thailand—should 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% in 2011, above its 6.1% 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 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.

 

 

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