ADB forecasts strong 2011, 2012 growth, warns of inflation
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Asian economies will maintain sound economic growth over the next two years despite challenges from rising commodity prices and geopolitical uncertainty, the Asian Development Bank (ADB) said Wednesday.
The Manila-based lender's annual economic report, which analyzes 45 Asian economies excluding Japan, predicted regional GDP growth of 7.8 percent this year and 7.7 percent in 2012, down from last year's 9 percent.
"Developing Asia, having shown resilience throughout the global recession, is now consolidating its recovery, and rapid expansion in the region's two giants – the People's Republic of China and India – will continue to lift regional and global growth," said Changyong Rhee, ADB's chief economist.
But the region still faces "critical challenges" including rising commodity prices, recent natural disasters in Japan and sluggish export demand from recession-hit developed nations.
The report forecast consumer prices in the region to climb by 5.3 percent in 2011 and 4.6 percent in 2012 as rising oil and food prices propped up by instability in the Middle East and North Africa further accelerate last year's 4.4 percent increase.
"Developing Asia is home to two-thirds of the world's poor, and it is they who are most vulnerable to the effects of price increases," Rhee said. "Policymakers must therefore consider preemptive action to control inflation."
ADB advised policymakers to employ a "coherent" mix of policy measures to fight inflation, including a more flexible exchange rate and coordinated capital controls, instead of depending solely on contractionary monetary policy to curb price increases.
"Many countries may already be behind the curve in fighting inflation, and some countries are showing signs of overheating," ADB President Haruhiko Kuroda said in a foreword to the report. "The task is complicated because lifting interest rates may induce foreign capital inflows, which can add to price pressures."
The International Monetary Fund and G-20 nations have made controlling capital inflows a key priority in recent months as capital fleeing lethargic, developed economies has flooded booming, emerging markets, the Wall Street Journal reports.
Although this money can spur investment, it can also destabilize an economy, contributing to inflation and asset bubbles.
Rhee also said that short-term trade disruptions caused by Japan's recent natural disasters were unlikely to substantially impact Asian economies as a whole.
Rather, some countries may see temporary gains as Japanese reconstruction efforts boost demand for construction materials, he said.
ADB predicted Japan's economy to recover from supply disruptions and power shortages and expand by 1.5 percent in 2011 and 1.8 percent in 2012.
In the long run, emerging economies need to develop new sources of growth by strengthening economic ties with Latin America, Africa and the Middle East by removing barriers to trade and investment, the report said.
Greater trade with these regions would help insulate developing Asia from disruptions in U.S. and European export markets, the bank noted.
ADB economists projected growth in China to slow to 9.6 percent this year from 10.3 percent in 2010 as tighter monetary policy takes effect and export demand in major markets such as the U.S. and Europe remains weak.
India's economy was forecast to expand by 8.2 percent in fiscal 2011, slipping from an expected 8.6 percent increase in fiscal 2010.
