Asia-Pac growth forecast slashed to 3.7%

Asia-Pac growth forecast slashed to 3.7%




(SINGAPORE) The Pacific Economic Cooperation Council (PECC) has cut its forecast of Asia-Pacific’s 2008 growth by more than one percentage point to 3.7 per cent.



In November last year, the think-tank was looking at 4.9 per cent growth in 2008 for the region. But ‘increased pessimism’ about the health of the US economy – which it now sees growing only one per cent this year, down from an earlier forecast of 2.9 per cent – and expectations that exports will be a drag on most of the region’s economies, weigh on the outlook.


Still, the impact of the US slowdown is ‘not forecast to be as severe on the region’s growth as on previous occasions’, PECC says in the first-quarter update of its state-of-the-region economic outlook. Much of East Asia’s growth is now driven by internal, rather than external, demand, it says.


But inflation is now a greater concern than it was six months ago – PECC has also hiked its consumer price inflation forecast to 3.6 per cent for 2008, from an earlier estimate of 2.7 per cent.


This forecast actually masks much sharper price hikes in certain Asian economies, PECC notes.


Overall, the risks to the forecasts are greater than they have been since the 1997 Asian financial crisis, it says, reiterating a point it made in November.


With rising inflation and ‘an uncertain end to the US credit crunch’, policymakers around the region will have less policy space to reflate their economies, says Yuen Pau Woo, president of the Asia Pacific Foundation of Canada, based in Vancouver, and co-ordinator of the state-of-the-region report.


Amid the bearish outlook, PECC does expect the region to bounce back in 2009 with growth forecast at 4.4 per cent. And again, the US economy – which is expected to recover and grow 2.5 per cent – will be key.


That said, PECC points out that the predicted recovery in the US economy is ‘by no means assured’.


And the surge in commodity prices in the first quarter of 2008 has led to protectionist trade stances across the region that have further reduced global supply in some cases, leading to even further hikes in prices.


Source: Business Times

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