04/02/2008, 00.00
ASIA
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Inflation, great risk to Asia’s emerging economies’

The Asian Development Bank is forecasting record inflation warning it might get “out of control” and kill real growth. Direct income support for the poor rather than broad subsidies is what is needed.

Manila (AsiaNews/Agencies) – Asia's emerging economies urgently need to tackle inflationary pressures before they spiral out of control in 2008, the Asian Development Bank (ADB) said today. Growth this year will slow to its weakest in the last five years.

The ADB said inflation should average 5.1 percent in developing Asia in 2008, the highest since 6.1 per cent during the 1998 Asian financial crisis, but warns that things could be worst since “published inflation rates disguise the true extent of underlying inflation pressures due to the presence of subsidies, administrative price controls and cuts in excise taxes,” measures much used by governments to cushion the impact of soaring fuel and food prices but which could cost a lot and cause a great jump in “fiscal costs [. . .] and require painful adjustments (or accelerating inflation, or both) later”.

For the ADB “targeted direct income support for the poor, within strict budgetary limits, might better alleviate stresses, and at much lower cost.”

“If this genie gets out of the bottle and inflation becomes ingrained, it could bring the growth process to a grinding halt,” Ifzal Ali, the ADB's chief economist.

“Economically, socially and politically it will become very dangerous. In Asia we have been focusing a lot on growth and we have taken price stability for granted.” But constantly rising food and oil prices are driving overall prices up.

For the ADB the region, which includes China, India, South Korea and Central Asia, should register an average GDP growth rate of 7.6 per cent in 2008. But this follows an 8.7 percent surge in 2007 and is the lowest annual growth figure since 7.1 percent in 2003

The ADB itself had predicted growth at 8.2 per cent and the new figures come as global problems, especially in the credit sector, come to the surface. Still whilst “developing Asia is not immune to global developments, [. . .] neither is it hostage to them”.

Next year the region should grow a touch faster at an average of 7.8 per cent if the credit crisis does not last long since all these economies are closely tied with the United States, Europe and Japan, whose growth should slow down this year.

China should grow 10.0 per cent in 2008 and 9.8 per cent next year after an 11.4 per cent surge in 2007.

India, which is more insulated from the global economy, should grow 8 per cent this year and 8.5 per cent in 2009 after 8.7 per cent last year.

The World Bank made a similar assessment in a report on the economic prospects of East Asia, suggesting Asian countries needed to continue their move to more flexible exchange rates to make better use of monetary policy to tackle inflation.

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