Hong Kong: Growth across developing Asia will slow to 7.5% this year from 9% in 2007 in the face of rising inflation, turbulent financial markets and weakening world demand, the Asian Development Bank has said.
Inflation is expected to climb to 7.8% this year from 4.3% last year, the Manila-based lender said in a report, further squeezing a region where food and fuel costs account for nearly 60% of household spending. Next year could see inflation ebb to 6%.
Downturns in the US and Europe, buyers of vast amounts of Asian-made goods, will only aggravate the situation. Already, there are signs that demand for exports is waning.
“Uncoupling is a myth,” ADB chief economist Ifzal Ali said, referring to the idea that Asian economies are increasingly less dependent on the US and Europe to drive their growth.
“The region still depends on industrial countries to fuel its growth. If the global slowdown extends beyond 2009, the repercussions for the region could be severe,” he said.
The forecast comes amid turmoil in financial markets, with Asian stocks plunging today on news about the bankruptcy filing of US investment bank Lehman Brothers and that Bank of American is buying Merrill Lynch.
The Chinese economy, which expanded 10.4% in the first half of the year, is likely to see its growth rate moderate somewhat to 10% for the year due to softening demand for its exports and tighter fiscal measures, the ADB said.
The country will post 9.5% growth for 2009 as its trade surplus and investment shrink.
On Monday, the Chinese central bank said it was cutting interest rates for the first time in more than six years to stimulate growth.