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ADB Forecasts Solid Growth for Asia in 2008

The Asian Development Bank says while Asia will not be immune to the global slowdown, economies in the region will continue to see solid growth in 2008. But the bank warns in its annual outlook that inflation in the region will jump this year. Claudia Blume reports from Hong Kong.

In 2007, Asia posted the highest growth in almost two decades, with regional economies expanding by 8.7 percent on average. The Asian Development Bank predicts that this year, growth will ease to 7.6 percent, as a result of the slowdown in large industrialized economies as well as surging food and fuel prices and a credit crisis in global financial hubs.

But Ifzal Ali, the ADB's chief economist, says this year's predicted growth rate is still solid and only slightly below the average of the past five years. He spoke Wednesday in Hong Kong, where the bank unveiled its annual Asian Development Outlook.

"Growth will remain solid because domestic conditions continue to be favorable. The policy environment is generally positiv," he said.. "Productivity growth linked to economic modernization and structural transformation that we have witnessed in the last five years and which have barreled Asia forward are likely to continue."

But risks remain. The ADB warns that inflation in the region will accelerate and could reach a 10-year high in 2008. In China, for example, inflation already has reached an 11-year high of 11.7 percent in February. The Bank is worried about the social and political impact of higher prices for food and other essential commodities, as they mainly affect Asia's poor.

Many Asian governments subsidize or control prices of some items to protect consumers and prevent social tensions. The ADB says that Indonesia, for example, spends more on fuel subsidies than on public health and education combined. Ali says these practices put fiscal health at risk, so governments need to rethink them.

"We need very quickly exit strategies for subsidies and administrative prices in developing Asia and replace them with targeted cash transfers for the really needy," he said.

The annual report warned that Asian economies need to address labor issues to fuel long-term growth. The report notes that many countries in the region have large populations of unemployed young adults, and that at the same time, these economies face shortages of the skilled workers needed for development.

The ADB says governments need to do more to educate young workers and help them find jobs. The report says otherwise, countries will lose out for decades on the talent and productivity of these young adults.

In addition, the report urged countries in Asia to make it easier for migrant workers to move about the region, to help fill gaps in labor supplies.