Asia to Expand Slower Than Expected in 2008, 2009, ADB Says

By Shamim Adam

Sept. 16 (Bloomberg) -- Asian economies will expand at a slower-than-expected pace this year and next as growth in the U.S., Europe and Japan weakens and central banks pursue policies to quell inflation, the Asian Development Bank said.

Asia excluding Japan will grow 7.5 percent this year, less than an April estimate of 7.6 percent, the Manila-based institution said in a report today. The region will expand 7.2 percent in 2009, the lender said.

The U.S. housing slump has roiled financial markets and forced Lehman Brothers Holding Inc. to file for bankruptcy yesterday, deepening a crisis that threatens to tip the world into a recession. A slowdown will hurt demand for Asian-made goods and reduce expansion in a region the ADB says will account for more than a fifth of global growth this year.

``The global economy is in trying times,'' the ADB said. ``The financial crisis has spread and has severely affected even those countries with limited exposure to the problem of the U.S. subprime market. Developing Asian economies are being caught between rising inflation pressures and weakening growth prospects.''

The economies of Europe and Japan contracted last quarter, while the U.S. has lost 605,000 jobs this year. The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, said Tony Tan, deputy chairman of sovereign wealth fund Government of Singapore Investment Corp.

Inflation in Asia will reach 7.8 percent this year, higher than an April forecast of 5.1 percent that was already the most in a decade, the ADB said. Prices may ease to 6 percent next year, the report said.

Tightening Measures

``Monetary policy has a major role in containing these price pressures, and regional economies need to address rising inflation even at the expense of slower short-term growth,'' the ADB said. ``Central banks should impose the requisite tightening measures to prevent inflation from becoming entrenched in their economies.''

The ADB left its forecast for China's growth this year unchanged at 10 percent, and reduced its prediction for next year to 9.5 percent from 9.8 percent. India will expand 7.4 percent in 2008, and 7 percent next year, lower than initial projections, it said.

The People's Bank of China will probably start easing bank lending controls in the second half, the ADB said. China yesterday said it will lower the one-year lending rate and cut the proportion of deposits that the nation's smaller banks must set aside.

In India, the central bank will probably implement ``additional tightening in policy'' to fight inflation, according to the ADB.

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