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ADB Predicts Slowdown in Growth, Sharp Rise in Inflation for Asia

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The Asian Development Bank predicts that developing economies in Asia will see slower growth and rising inflation in the coming year. The bank says high oil and food prices and a prolonged slowdown in industrial countries are casting a shadow on the economic outlook. Claudia Blume reports from Hong Kong.

The Asian Development Bank says risks to Asian economies are much higher today than it had predicted in its annual outlook in April. Ifzal Ali, the ADB's chief economist, says one of the biggest risks arises from uncertainties about how long the financial crisis in the United States will last.

Speaking in Hong Kong on Tuesday, he said the turmoil on Wall Street in the past two days has added to the uncertainty.

"And higher levels of uncertainty means greater volatility and this will of course impact on levels of both business confidence and consumer confidence," said Ali.  

Stock markets around the world have tumbled since the news late Sunday that the U.S. investment company Lehman Brothers would file for bankruptcy and that other financial firms faced massive problems.

The ADB says growth across developing Asia will slow to 7.5 percent this year and 7.2 percent next year - down from a record nine percent rate in 2007. Inflation is predicted to reach 7.8 percent in the region this year.

The outlook is clouded by persistently high oil and food prices. The non-profit lender forecasts that the recent drop in oil prices will be short lived and that prices generally will remain above $100 a barrel until at least 2020. And even though prices of food staples such as rice have fallen to more sustainable levels in recent months, the ADB says the problem is far from over as demand grows and supplies remain tight.

The situation is made worse by economic downturns in the United States and Europe, the main buyers of Asian goods. Most exports from the region are doing badly - be it garments, toys or computers.

For years, many international investors bet that robust growth in Asian economies would shelter them from weakness in the U.S. and Europe. Ali says that gamble has not paid off.

"What happens in New York and London spills over into Asia within hours," he said.  "One point that I would like to make loud and clear: the myth of decoupling has been exploded in the last eight months!"

Ali says there are a number of short-term policies governments in the region need to implement to ride out the storm. They include bringing inflation to heel and phasing out unsustainable subsidies for fuel, fertilizer and food. He says developing countries in Asia need to sacrifice growth now to avoid entrenched inflation.

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