ADB cuts developing Asia’s 2009 forecast

Manila, July 22:

The Asian Development Bank (ADB) today cut its 2009 growth forecast for the region’s developing economies to 7.6 per cent, citing tighter credit and soaring food and energy costs.

The bank trimmed its previous growth forecast from April of 7.8 per cent, and said actual growth could be lower if either inflation or the US economic slowdown were worse than expected.

It maintained the 2008 growth forecast for the region at 7.6 per cent, with China set to dip below five years of double-digit growth to 9.9 per cent in 2008 and 9.7 per cent next year.

However, it sharply raised its 2008 inflation forecast for East Asia to 6.3 per cent this year, from 5.1 per cent in its April outlook. Inflation averaged 3.9 per cent in East Asia last year.

Vietnam would be the worst off with 19.4 per cent inflation in 2008 and 10.2 per cent next year. The ADB warned Hanoi to ‘act decisively and swiftly to prevent the economy from deteriorating further’. The bank urged a ‘more decisive tightening of monetary policies’ to fight the scourge of inflation and prevent it eating away the fruits of speedy economic growth.

It noted that many governments were ‘behind the curve’ on the issue and warned the inflation problem was deepening. “The risk of inaction is rising, and the region’s monetary authorities need to formulate more forceful and preemptive policy responses,” the ADB said.

While economic growth in developing Asia in the first three months of the year was stronger than expected, it eased in the second quarter as slower growth in industrialised nations began to bite, the bank said.

Growth in the industrialised economies of Hong Kong, South Korea, Singapore and Taiwan would slow to 4.7 per cent this year amid weaker demand for their exports, before recovering to 4.9 per cent next year, it said.

The region’s developing nations should weather the storm ‘relatively well’, the ADB said, adding that central bankers were faced with a dilemma in trying to keep inflation in check without depressing the economy.

“Rapidly rising inflation threatens to dampen consumer spending and risks a wage-price spiral that could derail the region’s recent solid growth,” it said.

As it has in the past, the bank said Asian nations should allow their currencies to appreciate faster to help contain price pressures.