Policy makers in developing Asia can refrain from further monetary and fiscal stimulus because growth will remain robust, while oil-price spikes can revive the threat of inflation, the Asian Development Bank said.
Asia excluding Japan will expand 6.9 percent this year from 7.2 percent in 2011, the Manila-based lender forecast in its Asian Development Outlook 2012 report released today. That is lower than its September forecast of 7.5 percent. Growth will accelerate to 7.3 percent in 2013, the fastest pace in three years, it said.
“There is no clear case for short-term policy responses, but if inflationary pressures build up again and capital inflows resume, there may be a need to readjust monetary policy to maintain price stability,” Changyong Rhee, ADB chief economist, said in a statement.
Asian central banks from Thailand to Malaysia have refrained from interest-rate cuts and policy makers in Indonesia and South Korea are expected to keep borrowing costs unchanged at meetings this week. Most Asian currencies have risen this year and the ADB warned that volatile capital flows remain a concern as the region weathers the global slowdown.
Inflation in Asia excluding Japan will ease to 4.6 percent this year and 4.4 percent next year, from 5.9 percent in 2011, the ADB forecast. Crude oil averaged $118.45 a barrel last quarter, the most since the three months ending June 2008, prompting fuel-price increases from China to Vietnam in recent weeks.
“Continued instability in the Middle East, including threats of oil supply disruptions, could lead to another round of temporary price spikes, in turn fanning the embers of inflation in developing Asia,” the ADB said.
Policy makers in the region are balancing the need to support growth while containing price pressures. While budget deficits have narrowed, governments have no room for complacency, the ADB said.
Sri Lanka raised key rates last week for the second time this year after inflation accelerated. The Philippines will consider keeping borrowing costs steady as high oil prices threaten to spur cost pressures, central bank Governor Amando Tetangco signaled last month, while Malaysia’s monetary authority said it expects slower growth in a “complex global environment.”
Europe’s debt woes “present the greatest risk to the global outlook,” the ADB said. Asia’s challenge has shifted from financial contagion to slower export growth, it said, urging policy makers to rebalance their economies toward domestic and regional consumption, and prepare for the possibility of an extended period of weak European demand.
The debt crisis has damped China’s exports, with shipments to the European Union, the nation’s largest trading partner, declining 1.8 percent in the first quarter from a year earlier, Zheng Yuesheng, head of the customs bureau’s statistics department, said yesterday.
In addition, a key threat to the region’s long-term growth and stability is rising income disparities, which can damp the impact of expansion, and “even undermine the basis of growth itself,” the ADB said.
China will expand 8.5 percent this year, the lender said, lower than a September forecast of 9.1 percent, and a projection of 8.8 percent in December from ADB’s Office of Regional Economic Integration in Manila. China will expand 8.7 percent in 2013, it said today. India’s economy will grow 7 percent in the year ending March 31, down from a previous estimate of 8.3 percent. It will gain 7.5 percent in 2013-2014, ADB said.