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Asia-Pacific growth to slow down - report
By Xiao Xin (China Daily)
Updated: 2008-06-03 07:28

Economic growth in the Asia-Pacific region will slow to 3.7 percent year-on-year this year from 4.9 percent last year, while inflation will become a bigger concern, a major regional think-tank has forecast.

China will continue to drive the region's economy and grow by 9.6 percent this year, down from 11.4 percent last year, according to the report by the Pacific Economic Cooperation Council (PECC). It will account for more than 40 percent of Asia-Pacific economic growth.

The expected recovery of the US economy, meanwhile, may start towards the end of this year, although it is "by no means assured", said the report.

The economic growth of the Asia-Pacific was previously forecast at 4.9 percent, according to the report.

"The revision to our forecast comes from increased pessimism about the health of the US economy, which is forecast to grow at only 1 percent this year," the report said.

"The knock-on effects of the slow-down in the US economy and the turmoil in financial markets are seen in downward revisions for growth in most Asia-Pacific economies."

Japan's economic growth this year is expected to slow further to 1.6 percent after it slowed to 2.1 percent last year from 2.4 percent in 2006.

The weakening performance is due largely to the reduced contribution from the external sector, which will decrease from 1.1 percent in 2007 to 0.7 percent as a result of the slowdown in the US, a major market for Japanese exports.

The rest of the region follows a similar pattern to the big three Asia-Pacific economies except for South American economies (Chile, Ecuador, Colombia, and Peru) where growth is forecast to increase in 2008 to 6.7 percent from last year's 6 percent, buoyed mostly by strong commodities exports, according to the report.

"There is evidence that the impact of the sharp slowdown in the US is somewhat muted due to the increased importance of consumption in the region," the report said, noting that it remains a drag on growth for much of the region.

"While slowdown in growth weighs heavily on policymakers' minds, it is the specter of inflation that is causing the biggest headaches," the PECC said, forecasting that it may increase to 3.6 percent this year compared with 2.7 percent last year in the region.

The organization warned that China's inflation growth could hit 6 percent this year, well above the official target of 4.8 percent. In Indonesia, it could soar to 11.7 percent this year, nearly twice that of 6.6 percent last year.

In Southeast Asia, consumer inflation is set to almost double from 3.2 percent last year to 6.2 percent this year.

The report said one key development that needs to be watched is whether this year represents an end to the deflationary cycle in Japan, whose CPI inflation is creeping upwards from 0.1 percent last year to a forecasted 0.6 percent this year.

Inflation in the US is set to increase to 3.9 percent due to the sharp increase in oil prices before dropping back to 2.6 percent in 2009 in line with an expected drop in the price of oil next year, the report said.

The PECC forecast that the region as a whole may rebound with a forecasted growth of 4.4 percent.

China's growth may rebound to 10 percent while the US economy is expected to recover and grow at 2.5 percent.