Inflation to slow growth in east Asia: ADB

Inflation to slow growth in east Asia: ADB

Tuesday, 22 July 2008, 10:45 Hrs
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Manila: Economic growth in east Asia will slow down in 2008 and 2009, weighed down by higher than expected inflation and a protracted slowdown in the United States, the Asian Development Bank (ADB) said Tuesday.

In the July issue of its Asia Economic Monitor report, the Manila-based bank said east Asia's economic growth will moderate to 7.6 percent in 2008, from 9 percent in 2007.

The same growth rate is forecast for 2009.

The forecast covers China, Hong Kong, South Korea, Taiwan and the members of the Association of South-East Asian Nations (Asean) comprising Brunei, Indonesia, Malaysia, the Philippines, Thailand, Singapore, Vietnam, Laos, Cambodia and Myanmar.

Economic growth in China, the region's economic powerhouse, was forecast to ease to 9.9 percent in 2008 and 9.7 percent in 2009 from 11.9 percent in 2007, while growth in Asean was expected to slow down to 5.5 percent in 2008 and 5.8 percent in 2009.

The ADB urged policymakers in the region to take steps to rein in rising prices, which could trigger a price and wage spiral and lead to more inflation that poses a "serious threat" to sustained growth.

"Inflation will likely continue to plague much of emerging east Asia, as current record global energy and food prices seep down into overall economic activity, and there are few signs that they will subside any time soon," the report said.

It noted that core inflation, a measure of price increases that excludes food and energy costs, has already been rising across the region, signalling that a more broad-based second-round price effect may be under way.

The ADB said central banks in the region need "decisive tightening" of monetary policies to fight the rising prices.

"Allowing more exchange rate flexibility can help mitigate inflation and at the same time reduce the cost of sterilization," said Jong-Wha Lee, head of ADB's Office of Regional Economic Integration.

"Greater currency flexibility will also give more wiggle room to monetary authorities," it said.
Source: IANS
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