Asia and Latin America to slow slightly, inflation hits euro zone

Asia and Latin America to slow slightly, inflation hits euro zone

Shanghai/Frankfurt/Mexico City: Asia’s dynamic growth is expected to slow modestly in 2008 as its biggest economies grapple with emerging problems, from inflation in China to appreciating currencies in India and Japan. The expected slowdown in the US economy—a vital export market—and higher oil prices also cloud Asia’s outlook.

In China, worries persist that the economy is overheating. Inflation hit a peak of 6.5% this year, while real estate and stock prices also have soared, challenging policymakers whose options are limited by China’s continued controls on the currency and capital markets.

“It’s a delicate balance," says Nick Lardy of the Peterson Institute, a Washington think tank. Still, despite the uncertainties, both the World Bank and Asian Development Bank have forecast China’s gross domestic product (GDP) growth at 10.8% in 2008, down from the 11%-plus growth anticipated this year.

In India, a record surge in foreign investment has resulted in a sharp appreciation of the rupee, which is already hurting exports, especially earnings of the profitable outsourcing industry.

The country’s central bank has repeatedly tightened its monetary policy and somewhat succeeded in reversing a spike in inflation. But its measures have sapped the momentum of growth as new investments and sales in areas such as automobiles have slowed with higher lending rates. Analysts expect the Indian economy to grow 9% this year for the fourth straight year and to slow slightly to between 8 and 8.5% in 2008. In Japan, Asia’s biggest economy, the major concerns are about a slowdown in US growth and a stronger yen, which erodes the foreign-earned income of the country’s exporters.

Direct exposure of Japanese financial organizations to US mortgage market troubles is expected to be limited but uncertainty has dampened Japanese investor sentiment. The International Monetary Fund is forecasting Japan will grow 1.7% in 2008.

The European Central Bank (ECB) has resisted the impulse to raise interest rates as inflation accelerates in the 13 countries that use the euro currency. The ECB expects GDP growth in the euro zone of 2.4-2.8% this year, and between 1.5% and 2.5% in 2008 amid “resilient" global growth. Inflation in the euro zone, a bloc of 317 million people that accounts for more than 15% of the world’s GDP, could be a threat due to higher prices for oil and food. Inflation grew to an annualized rate of 3.1% in November, its highest point since the currency was introduced into general circulation in 2002 and well above the ECB’s guideline of just under 2%. The 27-nation European Union also reported inflation of 3.1%.

Growth across Latin America will likely be dragged down, but lower debt levels and stronger finances have steeled the region against the kind of economic meltdowns of the past. Economists expect GDP growth to be 4.9% in 2008, down from 5.3% this year, according to forecasts compiled by the Washington-based Inter-American Development Bank. The region is particularly vulnerable to a cooler US economy, which could crimp trade, tourism and the dollars sent home by migrants.

Rajesh Mahapatra in New Delhi and Yuri Kageyama in Tokyo contributed to this story.