News Room - Business/Economics

Posted on 07 Jul 2008

High inflation pressuring Asian economies, says ADB

Soaring inflation is battering Asian economies and threatens to stifle growth, but the still-robust region isn't at risk of a serious downturn, said Asian Development Bank President Haruhiko Kuroda Friday.

Energy and food prices are hitting record highs and pushing up inflation - 7.7 percent in China, 7.8 percent in India, 6.2 percent in Thailand and more than 20 percent in Vietnam.

And rising food prices have set off riots and protests worldwide and raised fears about a global crisis that could drive millions into poverty and malnutrition.

The problem is particularly acute in Asia, which is home to one billion people who spend at least 60 percent of their income on food, Kuroda said at the Foreign Correspondents' Club of Japan.

Still, the ADB remains bullish on the region. It estimates 7.6 percent aggregate GDP growth this year for the region, though that figure may be cut by 1-2 percentage points when revised figures are released in September, Kuroda said on his way to the Group of Eight leaders' summit this weekend in northern Japan.

Food and energy prices are expected to figure prominently in discussions at the meeting.

"For now, Asia and the Pacific - the world's largest and fastest growing geographic region - remains a stabilizing force,'' Kuroda said.

"But it is tremendously important to respond to these new circumstances in a timely and appropriate manner to keep regional growth on track.''

The Asian Development Bank, which was founded four decades ago to fight poverty in Asia, recently announced US$500 million in emergency aid for poor countries struggling with soaring food prices.

It will also double its lending to the agricultural sector in 2009 to US$2 billion. For Asian central banks, the issue presents a tricky monetary policy dilemma of controlling inflation without excessively sapping economic growth, Kuroda said.

Central banks so far have been "successfully tightening monetary conditions in order to contain inflationary pressures'' - a trend that is likely to continue for awhile, Kuroda said.

"I'm reasonably confident that emerging economies in the region would be able to overcome current inflation and go back to more stable and sustainable growth,'' he said.

The G-8 leaders - representing the U.S., Japan, Britain, France, Germany, Russia, Italy and Canada - are scheduled to meet July 7-9 in Toyako, Hokkaido.