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UN Says Asian Economic Growth Will Slow


A junk collector rides his tricycle with high-rising buildings as background in Shanghai, China. The prolonged weakness in the U.S. and Europe may be the least of Asia's troubles in 2011, economists say, as the region fights potentially destabilizing infl

A junk collector rides his tricycle with high-rising buildings as background in Shanghai, China. The prolonged weakness in the U.S. and Europe may be the least of Asia's troubles in 2011, economists say, as the region fights potentially destabilizing infl

A United Nations report says Asia's economic growth will slow in 2011 because of lackluster growth in Europe and the United States.

In its yearend forecast, the United Nations' says Asia-Pacific economies face a tougher time as governments around the world close out stimulus programs initiated during the global financial crisis.

Nagesh Kumar is chief economist at the United Nations Economic and Social Commission for Asia and the Pacific.

"Going forward we see another set of challenges which will mean that next year could have a slightly slowing down of the growth rate in Asia Pacific, Kumar says, "That primarily links up with the slowing down of recovery in U.S. and Europe and that is affecting the growth rate in the Asia, Pacific."

China and India led Asia's recovery from the global slump, which began in 2008. Because of their strength, Asian economies averaged growth of 8.3 percent this year, but it could fall to 7 percent next year.

Some Asian economies face a challenge from a flow of investment funds from Europe and the U.S. Low yields on investments in those markets has international investors looking to Asia for profits. And the U.S. Federal Reserve's decision to inject $600 billion into the U.S. money supply may increase the flow.

Kumar warns inflow could have a "tsunami effect" on Asia - flooding in and then doing great damage when if the money is suddenly pulled out.

He says the flows could cause sharply rising prices for assets such as stocks and property, force up currency values and increase inflation. He recommends that governments impose controls on the capital that moves in and out of their countries.

Appreciating currencies hurt exports, a primary source of regional growth over recent decades. Kumar says the financial crisis provided Asia an opportunity to look to new business models that focus on regional consumption.

Kumar also says a massive build-up of foreign exchange reserves has opened the way for governments to set up a regional central bank or other financial institution. That would allow those reserves, in excess of $5 trillion dollars, to be put to more productive use.

"The reserves have accumulated to such a huge level that their management is becoming a problem. It costs to manage these reserves - they are earning negative rates of return," Kumar explains, "If we could find more productive deployment within the region that would be very desirable from the governments' point of view or central banks' point of view."

He says countries could pool reserves for development financing, much the way in Latin American countries have done in recent years.

Despite somewhat slower growth next year, the U.N. report says Asia's prospects remain sound, in part because of growing trade with Africa and Latin America.

The report says Asia will remain the principal contributor to global growth.

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