ADB pares East Asia growth forecast to 8%

ADB pares East Asia growth forecast to 8%

Singapore: Asia’s developing economies will slow next year as rising commodity prices and volatile financial markets weigh on growth, the Asian Development Bank?(ADB) said.

Emerging East Asia is predicted to expand 8% in 2008, easing from an estimated 8.5% pace of growth this year, according to a report released on Thursday by the lender’s Office of Regional Economic Integration in Hong Kong.

“Inflationary pressures are resurfacing as global oil and commodity prices surge, complicating monetary decisions into 2008," the report said. “Although recent financial instability has had only limited impact on the global economy, further significant spillover cannot be ruled out."

Asian central banks are combating inflation pressures at a time when economic growth in the US, the biggest market for most of Asia’s export-dependent economies, is slowing. Global markets lost $2.3 trillion (Rs90.6 trillion) in value in November and the collapse of the subprime mortgage market in the US triggered $80 billion in writedowns among the banks.

The price of crude oil has risen 54% this year and reached $99.29 a barrel on the New?York Mercantile Exchange on 21 November, the highest since trading began in 1983.

“Even as growth slows somewhat, inflation is generally picking up in many emerging East Asian economies, largely due to resurgent oil and other commodity prices," the Asia Economic Monitor report said. “Robust growth, relatively tight labour markets and higher energy prices are expected to generally increase inflationary pressures in 2008."

Emerging East Asia groups China, the South-East Asian nations of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand and Vietnam, and newly industrialized economies of Hong Kong, Singapore, South Korea and Taiwan.

China’s economy is likely to slow as government measures to cool growth “begin to take hold", says the report. Asia’s second largest economy will expand 10.5% in 2008, compared with an estimated 11.4% in 2007, the lender said.

China has cracked down on bank lending to try and prevent the economy from overheating after inflation jumped to an 11-year high in November. Last week, it announced the largest increase since 2004 in the proportion of deposits that lenders must hold as reserves, a 1 percentage point jump to 14.5%.

The People’s Bank of China has raised interest rates five times this year, pushing the one-year lending rate to a nine-year high of 7.29%.

China’s growth is expected to drive Hong Kong’s expansion, which “remains solid", ADB said.

Still, “more subdued financial market conditions" are likely to curb Hong Kong’s growth, as well as Singapore’s.

Hong Kong will grow 5.4% in 2008, from a predicted 6.1% this year. Singapore’s economic expansion will probably ease to 6.3% in 2008, from a forecast rate of 8.1%, the lender said.

“The external environment is increasingly uncertain and the current period of financial turbulence will likely continue," the report said.

The US Federal Reserve, the European Central Bank and three other central banks moved in concert on Wednesday to alleviate a credit squeeze threatening global growth, in the biggest act of international economic cooperation since the 11 September terrorist attacks.

Asia has been largely shielded from the turbulence in global financial markets asits lenders have limited exposure to the subprime crisis, ADB said.

Most of the region’s economies have employed “prudent policies" which helped reduce the impact of credit crunch, the report said.

Most of the region’s economies have employed “prudent policies" which helped reduce the impact of credit crunch, the report said.

Still, “the contagion effects could become more serious if tightening credit conditions and financial instability dampen broad economic activities both at global and regional levels."

Marco Babic in Singapore contributed to this story.