Twin Blow To Asia

The region is hit by slow economic growth and rising food and oil prices.

2011.04.06
Burmese women work in a rice field, July 2, 2010. The government has suspended rice exports to tame rising prices.
AFP

Rising food and oil prices, stoked by upheaval in the Middle East and North Africa as well as the earthquake turmoil in Japan, are posing a threat to sustained economic growth in developing Asian economies, the Asian Development Bank (ADB) warned Wednesday.
 
Rapidly growing economies such as China will see their gross domestic product—the output of goods and services—shaved this year and in 2012, while Vietnam is expected to suffer a staggering jump in inflation to a peak of 16 percent in 2011, the bank said in a flagship annual economic report.

"Developing Asia is home to two-thirds of the world's poor and it is they who are most vulnerable to the effects of price increases," said ADB's chief economist Changyong Rhee.

"Policymakers must therefore consider preemptive action to control inflation before it accelerates," Rhee warned.

Oil prices will soar above U.S. $130 a barrel by late 2011, a new Reuters poll found, and one in five traders said they expected oil to hit $150 this year, levels some economists say could trigger recession.

Political instability in the Middle East has raised questions about oil supplies, while Japan’s nuclear energy woes following a massive earthquake and tsunami have heightened concerns about this alternative energy source, ADB said.

Food prices hit record high

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Adding to the oil price concerns is jumping food prices, which hit records in February.

The Manila-based ADB said that based on estimates, a 10 percent rise in domestic food prices would raise the number of poor in developing economies in the region by about 64 million, or more than 7 percent.

Developing Asia, a diverse group of economies including China, Laos, Vietnam, Burma, and Cambodia, is expected to grow at an average 7.8 percent in 2011 and 7.7 percent in 2012, slower than the 9 percent seen in 2010, the bank said.

At the same time, inflation may climb to an average 5.3 percent this year from 4.4 percent in 2010, before easing to 4.6 percent in 2012, the ADB said, pointing out that some economies were showing signs of potential overheating.

"High inflation is a direct threat to stable and inclusive growth since rising domestic prices can lead to social tensions," the ADB said, citing Vietnam as among the most at risk from rising prices.

Consistent policy actions needed

In Vietnam, inflation "is forecast to remain high through 2011, peaking at about 16 percent year on year in the third quarter and averaging 13.3 percent."

"Restoration of solid investor confidence will require sustained and consistent policy actions until inflation is subdued," the bank said.

It cautioned that Vietnamese authorities face tough decisions in keeping interest rates steady as they move to curb inflation.

"Insufficient policy tightening or premature easing—or perception of easing—of policies would keep inflation high for longer and could lead to a deterioration of the external accounts."

The ADB said that in China, for the first two months of this year, inflation averaged 4.9 percent, exceeding the full-year official target of 4 percent.

In Cambodia, it said, there were indications that poverty had increased since 2007 as a result of sharply higher food prices in 2008 and the economic slowdown in 2009.

In Laos, higher prices for imported oil, coupled with growth in credit and a possible further depreciation of the local kip currency against the Thai baht, will maintain upward pressure on inflation, which is projected at about 6.5 percent in 2011.

Inflation in Burma is projected at a high 8 percent with domestic price of rice surging in early 2011.

A government decision to suspend rice exports in March may moderate price increases, but the ADB noted that much rice is still exported illegally.

Reported by Parameswaran Ponnudurai.

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