Asian Development Bank sees growth slowdown in the next two years

Developing Asia's economic growth is expected to slow down in the next two years due to high oil and food prices and an economic slump in industrial countries, a report by the Asian Development Bank (ADB) said Tuesday.

The Manila-based ADB said developing Asian economies will revert to moderate growth of 7.5 per cent in 2008 and 7.2 per cent in 2009 after posting their fastest growth of 9.0 per cent in 2007.

"Clouding the outlook for the region are the continued elevated level of international oil and food prices, the persistence of high inflation and a prolonged slowdown in industrial countries," the Asian Development Outlook 2008 Update said, the dpa reported.

The report projects an inflation rate of 7.8 per cent in 2008 in Asia and the Pacific, up from an earlier estimate of 5.1 per cent. In 2009, inflation is projected at 6.0 per cent.

Growth in East Asian countries is expected to decelerate to 8.0 per cent in 2008 and 7.7 per cent in 2009, from 9.6 per cent in 2007, the report added.

In South-East Asia, aggregate gross domestic product was projected to ease to 5.4 per cent in 2008 and 2009, from 6.5 per cent in 2007.

"Rising inflation is generally dampening growth in consumption," the report said. "Curbing inflation is the crucial macroeconomic challenge in most south-east Asian countries."

Ifzal Ali, ADB chief economist, said that despite the softening of world oil prices, these will remain at elevated levels.

"Higher oil prices are here to stay and the sooner that developing Asia wakes up to this reality the better," he said. "The past few years of robust growth in the face of rising oil prices should not delude us into believing that Asia's growth prospects will be immune from the effects of expensive oil."

"Looking ahead, a prolonged elevation of oil prices would almost certainly have an adverse impact on Asia's future growth," Ali said.

Ali also warned that despite the easing of food prices during the past months, the prices of staple food remained high and the crisis felt earlier this year is not yet over.

"Demand for food continues to outstrip supply," he said. " Asia is just one shock away from another grain price spike."

Ali urged Asian governments to implement structural reforms to boost agricultural productivity in the region.

"Governments have to invest in public goods that support agricultural productivity growth and allow clear market signals to pass through to producers and consumers alike," he said.

"Only a robust supply response by Asia's farmers can bring down prices to comfortable levels again," Ali added.

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