Asian Growth: Some Like It A Little Less Hot

HONG KONG -

After experiencing sizzling economic growth--the highest in nearly two decades--Asia as a whole will see a gradual but measurable deceleration as the rest of the world's economy starts to cool.

The region, excluding Japan, will see economic growth decline to 7.6% this year, from an average of 8.7% in 2007, before picking up slightly, to 7.8%, in 2009, according to the annual economic forecast released on Wednesday by the Asian Development Bank. The Manila-based bank expects a less blistering expansion in the region's two biggest economies, China and India, as their policies to clamp down on inflation start to bite. It anticipates that China, which has more exposure to international trade than India, will feel the fallout from economic slowing in the world's three largest economies, the United States, the European Union and Japan, to a more pronounced degree.

China's GDP is projected to slow to 10% in 2008 and a bit further, to 9.8%, in 2009, as the pace of investment declines slightly, leaving the country more reliant on domestic consumption to pick up the slack. India, whose economic growth had already slowed to 8.7% in fiscal 2007, from 9.6% the year before, will come down further, to 8%, in fiscal 2008 but is expected to rebound to 8.5% the following year, helped by a broad-based pickup in domestic spending, ADB said.

Asia's slowdown will be complicated by the threat of rising costs across the region, with inflation expected to spike in 2008, at a regionwide rate of 5.1%, declining to 4.6% the following year. If this came to pass, it would be the fastest pace at which prices have risen for the region in a decade. ADB said Central Asia will be hit the hardest, with inflation remaining in double-digit ranges, but China, where inflation is at 11-year high, and Vietnam, where inflation also stands at the highest in more than a decade (having surged to a year-on-year rise of 19.4% in March), also will be vulnerable.

"Asia will not be immune to the global slowdown, neither will it be hostage to it. It remains tied to global activity through traditional trade channels, and increasingly, through its closer integration in international financial markets," said ADB Chief Economist Ifzal Ali. He said the success of Asia's economic modernization and structural transformation should keep the region on a strong growth path but warns of the risk of an inflationary spiral.