Asia's growth to moderate on rising inflation, weak global demand

After a strong rebound in 2010, economic growth in emerging East Asia will moderate this year and in 2012 as authorities continue to battle inflation and as advanced economies try to shore up an anemic recovery, aqccording to the July edition of the Asian Development Bank’s (ADB) Asia Economic Monitor (AEM).
The report forecasts aggregate GDP growth for emerging East Asia economies of 7.9 per cent in 2011 and 7.7 per cent in 2012. In 2010 aggregate growth reached 9.3 per cent.
“Growth is easing in most of emerging East Asia as authorities wind down fiscal stimulus measures and tighten monetary policies to counter rising inflation,” said Iwan Azis, Head of ADB’s Office of Regional Economic Integration that prepared the report. “This is actually a good thing so stronger economies like the People’s Republic of China (PRC) don’t overheat.
"The AEM, a semiannual report, assesses the outlook of the 10 members of the Association of Southeast Asian Nations (ASEAN); the PRC; Hong Kong, China; Republic of Korea; and Taipei, China.
Growth in PRC moderated slightly to 9.5 per cent in the second quarter of 2011 from 9.7 per cent in the first quarter. Looking ahead, a slow external environment and tighter monetary stance are expected to moderate growth to more sustainable levels of 9.6 per cent for the full year and 9.2 per cent in 2012.
The highly trade-dependent Newly Industrialised Economies of Hong Kong, China; Republic of Korea; Singapore and Taipei, China should also see a return to more sustainable long- term levels of growth as a weakened external environment slows exports.
Three of ASEAN’s middle income economies—Malaysia, the Philippines and Thailand—should see growth taper due to diminished export demand and tighter monetary policy. Indonesia stands to buck the trend with strong domestic demand expected to drive growth to 6.4 per cent in 2011, above its 6.1 per cent growth in 2010.
The ADB report highlights the risk of rising inflation leading to wage-price spirals that could derail the region’s growth. Other risks to the outlook include a more tepid than expected recovery in Japan and unresolved debt problems in the US and eurozone; increasing financial market volatility; and destabilising capital flows.
The report also contains a special section on how authorities can respond to inflation driven by surging commodity prices. It suggests that a pragmatic approach to a range of policies may help governments manage the inflationary impact of sustained and volatile changes in commodity prices. It also points out that greater exchange rate flexibility can help mitigate the effects of global commodity price surges on domestic prices.