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Wednesday, 17 September 2008

ADB cuts Asia growth forecast

MANILA - ASIAN growth will slow further this year and next as the turbulence on global markets fans inflation, the Asian Development Bank (ADB) warned on Tuesday.

Governments in the region will need to address inflation even if it means slower economic growth, the Manila-based lender said in an update to its 2008 Development Outlook report.

The report was written before a weekend of financial market turmoil in the United States that has already had global repercussions, after Lehman Brothers filed for bankruptcy and Merrill Lynch was only saved with a takeover by Bank of America.

In its report the ADB said the past eight months of turmoil in the markets had 'exploded the myth of uncoupling' and showed economies in Asia were still heavily reliant on industrial countries, notably the US, for their exports.

Around 85 per cent of footware imported by the US and a third of its clothing comes from developing Asia, the bank said.

The ADB sharply increased its inflation forecast for Asia for 2008 from the 5.1 per cent predicted in April to 7.8 per cent, and to 6.0 per cent in 2009.

Economic growth in 2008 is expected to drop from the 7.6 per cent that was forecast in April to 7.5 per cent, and slow further to 7.2 per cent next year.

The ADB said it expected food prices would remain high, and that oil would remain 'well above' US$100 (S$143) a barrel.

China's economic growth will remain unchanged at 10 per cent this year, the ADB forecast, but it revised down slightly its 2009 forecast to 9.5 per cent on the expectation of a reduced trade surplus and slower investment growth.

The ADB said that while some central banks had started to tighten monetary policy, 'some may have let the inflation genie out of the bottle by doing too little, too late, since interest rates in most countries are still lower than inflation.'

'Containing inflation will take time as monetary policy works with a lag,' the bank said.

The ADB projected double-digit inflation this year for Cambodia, Indonesia, Laos, Philippines, and Vietnam.

'Curbing inflation is the crucial macroeconomic challenge facing most Southeast Asian countries,' the bank said. -- AFP

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