East Asia's Economies to Grow 7.6% in 2008, 2009, ADB Says

By Shamim Adam

July 22 (Bloomberg) -- Asia's developing economies will expand at a slower-than-expected pace this year as easing U.S. growth weighs on exports and accelerating inflation crimps consumer spending, the Asian Development Bank said.

East Asia may expand 7.6 percent in 2008, less than a December estimate of 8 percent, according to a report released today by the lender's Office for Regional Economic Integration in Manila. Next year's growth is also estimated at 7.6 percent.

``Emerging East Asia is facing stronger headwinds as external demand weakens, global oil and food prices remain elevated, the global IT recovery remains fragile, and the subprime-generated financial turmoil continues to work itself out,'' the ADB division said.

Record oil and commodity costs have fueled inflation across Asia and spurred public protests by Indian truck drivers and Indonesian students. Surging prices have forced central banks from Vietnam to Indonesia to increase interest rates at the risk of stifling expansion further as a U.S. slowdown hurts demand for the region's goods.

There are few signs that price pressures will subside anytime soon, the ADB unit said, predicting inflation in the region will average 6.3 percent this year, more than double the average in the 10 years to 2006, and ease to 4.6 percent in 2009.

``Inflation will likely continue to plague much of emerging East Asia as record global energy and food prices seep down into overall economic activity,'' it said. ``Rapidly rising inflation threatens to dampen consumer spending and risks a wage-price spiral that could derail the region's recent solid growth.''

`Decisive Tightening'

Asian central banks need ``decisive tightening of monetary policies'' to combat the rise in prices, said the unit, which makes forecasts separately from the ADB.

The Philippine central bank has raised interest rates at its last two meetings, while Bank Indonesia has boosted borrowing costs for three consecutive months. In Vietnam, rates were increased to 14 percent, the highest in Asia, and Thailand raised its benchmark for the first time in two years last week.

Still, monetary policy in many East Asian economies is ``behind the curve,'' the ADB unit said. ``There are growing signs that inflation expectations are beginning to drift, with second-round price effects beginning to burrow through the region's economies.''

The countries should allow their currencies to strengthen faster to help contain import costs ``while increasing monetary policy autonomy,'' it said.

China Cools

China's growth is likely to cool amid a ``more protracted'' U.S. slowdown and as the government tightens policies to keep inflation contained, according to the report. Asia's second- largest economy will expand 9.9 percent in 2008, compared with a December estimate of 10.5 percent, the ADB unit said. Expansion may slow to 9.7 percent next year.

Growth in the second quarter was the slowest since 2005, China's government said last week. The yuan's 7.1 percent advance this year has made it Asia's best performer and some Chinese officials are pressing for slower currency appreciation to protect jobs as cooling global demand threatens exports.

``With inflation still relatively high, though moderating, more tightening may be expected,'' the ADB unit said. ``A gradually appreciating renminbi, continued monetary tightening, and an expected deceleration in external demand growth should lead to an easing in overall GDP growth.''

Emerging East Asia groups China, the Southeast Asian nations of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand and Vietnam, and the newly industrialized economies of Hong Kong, Singapore, South Korea and Taiwan.

The following is a table of the Asia Development Bank's Office of Regional Economic Integration estimates for annual gross domestic product growth for this year and next.

====================================================
                             2008    2008    2009
                              New    Prior
====================================================
                               Annual GDP Growth
Emerging East Asia            7.6%    8.0%    7.6%
ASEAN                         5.5%    6.1%    5.8%
Cambodia                     7.5%    8.0%    7.0%
Indonesia                    6.0%    6.4%    6.2%
Lao PDR                      7.7%    7.9%    7.8%
Malaysia                     5.4%    5.9%    5.6%
Philippines                  5.5%    6.4%    5.6%
Thailand                     5.0%    4.8%    5.2%
Vietnam                      6.5%    8.5%    6.8%
Newly Industrialized
Economies                     4.7%    5.1%    4.9%
Hong Kong                    4.9%    5.4%    4.9%
South Korea                  4.7%    5.0%    4.9%
Singapore                    4.9%    6.3%    5.8%
Taipei, China                4.5%    4.8%    4.8%
China                         9.9%   10.5%    9.7%
Japan                         1.5%    1.7%    1.5%
U.S.                          1.5%    1.9%    1.6%
Euro Area                     1.8%    2.1%    2.0%
=====================================================

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net