Inflation, Market Turmoil Seen Risks to Asian Economic Growth

Manila Bulletin, November 19, 2007 | Go to article overview

Inflation, Market Turmoil Seen Risks to Asian Economic Growth


SINGAPORE, Nov. 18 (Reuters) -- The head of the Asian Development Bank said on Saturday that inflation from rising oil and commodities prices as well as renewed turmoil in financial markets posed the biggest risks to economic growth in Asia.

Speaking to reporters on the sidelines of a conference, ADB President Haruhiko Kuroda also said that Asian economies, excluding Japan, may beat the Asian Development Bank's 2007 growth forecast of 8.3 percent.

"There is a possibility that we will even outperform that forecast," Kuroda said.

The ADB in September upgraded its 2007 growth prediction for Asia's developing economies, the world's fastest growing, to 8.3 percent from 7.6 percent. The region expanded by 8.5 percent last year.

"There are a few risks, one is of course inflationary pressures growing in the world, including very high oil and commodity prices," he said, noting that Asia's economies had so far grown strongly despite high oil prices.

"Second is of course the financial market situation.

Several weeks ago, there was a bit of financial market turmoil.

The market has stabilized, but you always have to be aware of such kinds of risks."

Kuroda said that in spite of those risks the ADB's main scenario for Asian economies was continued growth.

Earlier, the World Bank, in an updated report released last Thursday lifted its economic growth estimate for East Asia this year by a full percentage point after an unexpected strong spurt in China's growth in the first half of 2007.

In its semi-annual report, the World Bank predicted growth would reach a decade high of 8.4 percent for the region, which is East Asia excluding Japan. In April, the bank had estimated growth will average 7.3 percent this year after an 8.3 percent expansion in 2006.

It predicted a third year of 8-percent-plus growth next year, with GDP growth seen hitting 8.2 percent.

"Our projections for regional growth in 2007 and 2008 have been substantially increased compared to six months ago, mainly due to the unexpected and large domestic demand-led acceleration of growth in China," the World Bank said.

This year's high growth had occurred despite a weakening in US import demand and a resulting slowdown in the region's exports, it said.

It said the risks of a significant cyclical slowdown had however increased. "There is a significant probability that the subprime crisis, the associated credit squeeze and rising oil prices could force a more substantial downturn in the developed world, in particular in the US"

But the World Bank believes East Asia will not be severely affected, because of its strong economic fundamentals and solid demand for high-technology products, Asia's key exports.

"There are as yet few signs of a significant pickup in underlying core inflation pressures or of other domestic constraints or imbalances that would require a marked slowing of growth," it said. …

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