Asia will avoid sharp slowdown, says ADB

Source : Straits Times - 5 Jul 2008

EMERGING Asia looks set to avoid a sharp slowdown given strong economic growth in China, the head of the Asian Development Bank (ADB) said yesterday.

Asia should also easily avoid a repeat of the financial crisis that rocked the region a decade ago, ADB president Haruhiko Kuroda told a press conference.

That said, the region’s emerging economies are ‘highly vulnerable’ to skyrocketing oil prices, given their high dependence on oil imports and low energy efficiency, thus making inflation the No. 1 concern for policymakers, he added.

‘With the global economy slowing and oil subsidies being phased out, high oil prices could have a more visible impact on domestic consumption and growth in the region this year and in 2009.’

Central banks in emerging Asia face a dilemma about how to contain inflation through higher borrowing costs while avoiding snuffing out economic growth, Mr Kuroda noted. While rate rises may put the brakes on growth, ‘the risk would be even greater if prices spiral out of control’.

Despite inflation worries, the ADB chief expressed optimism about prospects for the region’s economies.

‘On the whole, economic growth in Asia is quite robust. A sharp slowdown is still unlikely in emerging Asian countries,’ he said.

‘I’m reasonably confident that nothing like the Asian currency crisis 10 years ago would happen in the region,’ he added, noting that countries had built up large foreign currency reserves.

The East Asian financial crisis began in 1997 when Thailand floated the baht after a series of speculative attacks, leading to a plunge in its value.

Other regional currencies also came under pressure and countries such as Indonesia, Thailand and South Korea were forced to turn to the International Monetary Fund for emergency funds to try to stabilise their currencies.