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Asia’s growth may slow in ’08

Emerging problems in major economies cloud outlook

(SHANGHAI, China) Asia’s dynamic economic growth is expected to slow modestly next year as its biggest economies grapple with emerging problems, from inflation in China to appreciating currencies in India and Japan.

The expected slowdown in the US economy – a vital export market – and higher oil prices also cloud Asia’s outlook.

In China, worries persist that the economy is overheating. Inflation hit a peak of 6.5 per cent this year, while real estate and stock prices also have soared, posing a challenge to policymakers whose options are limited by China’s continued controls on the currency and capital markets.

‘It’s a delicate balance,’ said Nick Lardy of the Peterson Institute, a Washington think-tank.

‘They want growth, but they don’t want inflation. At the same time they might cut investment too much,’ he added.

Still, despite the uncertainties, China looks set for yet another year of double-digit expansion, with both the World Bank and Asian Development Bank forecasting gross domestic product growth at 10.8 per cent in 2008, down from the 11 per cent-plus growth anticipated for this year.

In India, a record surge in foreign investment has resulted in a sharp appreciation of the rupee, which is already hurting exports, especially earnings of the highly profitable outsourcing industry.

The country’s central bank has repeatedly tightened its monetary policy and somewhat succeeded in reversing a spike in inflation earlier this year.

But its measures have sapped the momentum of growth as new investments and sales in areas such as automobiles have slowed with higher lending rates.

Analysts expect the Indian economy to grow 9 per cent this year for the fourth straight year and to slow slightly to between 8 per cent and 8.5 per cent in 2008.

In Japan, Asia’s biggest economy, the major concerns are about a slowdown in US growth and a stronger yen, which erodes the foreign-earned income of the country’s exporters.

Direct exposure of Japanese financial organisations to US mortgage market troubles is expected to be limited.

But uncertainty over a possible fallout has weighed on Tokyo share prices and dampened Japanese investor sentiment.

The International Monetary Fund is forecasting that Japan will grow 1.7 per cent in 2008, down from an estimated 2.0 per cent this year.

 

Source: AP (Business Times 18 Dec 07)

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