ADB: Inflation threatens East Asian growth

HONG KONG (AP) — Surging inflation, a weak post-tsunami economic recovery in Japan and debt woes in the U.S. and Europe threaten East Asia’s economic outlook, the Asian Development Bank said Thursday.

The Manila-based lender maintained its economic growth forecasts for 14 emerging and newly industrializing East Asian countries in 2011 and 2012. But it said the region faces risks that also include more volatile financial markets and destabilizing inflows of short term capital, also known as “hot money.”

The ADB’s growth forecasts were unchanged from a report in April, with East Asia forecast to expand nearly 8 percent this year and next. But it indicated that the outlooks for a few countries including China could be downgraded.

In the first half of 2011, economic growth across East Asia eased from a blistering pace as inflation surged across much of the region, driven by higher commodity prices and strong economic recovery.

“Rapidly rising inflation risks a wage-price spiral that could derail the region’s recent strong growth,” the report said.

The report also detailed other sources of rising prices.

In many East Asian economies property prices are climbing quickly.

The devastating tsunami and nuclear disaster in Japan in March has also spurred a debate over the use of nuclear power, which could drive up energy prices by boosting demand for other energy sources such as oil and gas.

The threat of inflation has been a major worry in Asia this year. The ADB warned in April that surging food prices of 10 percent on average in many Asian economies could drive 64 million more people into poverty.

The ADB’s economists also fretted about the dismal prospects for the U.S. and Europe, which are plagued by high unemployment and debt problems. Both are major customers for East Asia’s exports.

Meanwhile, Japan’s economy’s, already struggling with recession following production disruptions caused by the tsunami, must also cope with a strengthening yen, which will hurt its exports by making them more expensive.

“If the recovery in Japan, U.S. and eurozone falters, sluggish external demand could once again disrupt the region’s exports,” the report said.

The ADB maintained its forecast for China’s gross domestic product growth at 9.6 percent this year and 9.2 percent next year. Weak export demand and interest rate hikes by China’s authorities aimed at keeping inflation under control “is expected to help growth moderate to more sustainable levels in the months ahead,” the report said.

The ADB said that it expected to lower its 2011 forecast for China’s growth but did not say by how much.

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