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China, India set for slower growth as inflation looms: OECD

China, India set for slower growth as inflation looms: OECD
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First Published: Wed, Jun 04 2008. 03 42 PM IST
Updated: Wed, Jun 04 2008. 03 42 PM IST
Paris: China and India are set for slower but robust economic growth this year although sharply higher inflation looms as a key threat amid soaring global food and oil prices, the Organisation for Economic Cooperation and Development said on Wednesday.
China will grow 10% against 11.9% in 2007 as exports slip amid a world slowdown and anaemic US expansion, OECD forecast in its biannual Economic Outlook.
India’s expansion will fall to 7.8%in 2008 from 8.7%the previous year, partly due to higher interest rates, said the report from the grouping of 30 industrialized nations, which does not include the two Asian giants.
“Growth in the emerging markets, while moderating, remains strong, especially in China,” the report said, adding the odds were improving that global financial market turmoil had passed its peak.
Asian stock markets began sliding last year after a ballooning default crisis among so-called “subprime” — or riskier — US mortgages, which has led to huge losses, a global credit crunch and a world economic slowdown.
Exports from Asia to the ailing US economy have slowed but recent official data indicated trade within Asia and shipments to other parts of the world were holding up.
The European Union had now become China’s biggest export market, but wage and price inflation were set to erode its export competitiveness, the OECD said.
Buoyant incomes were also helping Chinese consumers, supporting the economy this year and in 2009, when growth is forecast at 9.5%, it said.
“The Chinese economy is slowing to a more sustainable pace and there are early indications that the pattern of growth is beginning to rebalance away from net exports to domestic demand,” the OECD said.
But rising inflation posed a key risk in India and in China, where the devastating earthquake in Sichuan province, a key farming area, could push up food prices, the OECD added.
Annual inflation in both countries is over 8% as the prices of staple foods and crude oil soar, forcing India to announce Wednesday a hike in subsidised fuel prices.
The OECD expects Indian growth to speed up in 2009 but said the principal risk to its forecasts was “inflation not moderating” despite hikes in borrowing costs and other steps by the Indian authorities to cool prices.
For China, the body said that the “longer inflation is allowed to persist, the higher the risk of rising inflation expectations, necessitating more of a slowdown than currently projected.”
There are fears rising inflation across Asia will hit consumer spending, squeeze business profits and force up interest rates, slowing growth.
Key numbers from a batch of Asian nations have shown unexpectedly strong economic expansion in the first quarter of 2008, but many experts predict worse to come.
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First Published: Wed, Jun 04 2008. 03 42 PM IST
More Topics: OCED | Economy | Asia | GDP | Inflation |